The just-food interview – Oliver Wyncoll, Langholm Capital
Private equity groups may be seen as asset-stripping predators but Langholm Capital clearly believes it is representative of a different breed, and its recent track-record in the food industry appears to back that up. In this month's just-food interview, Katy Humphries spoke with Langholm principal Oliver Wyncoll about the fund's approach and what it has in store for its most recent acquisition, Tyrrells Crisps.
The private equity sector has attracted negative publicity in the UK in recent years, with trade unions criticising the 'veil of secrecy' funds operate under and the Government scrutinising what some would describe as excessive salaries paid to private equity bosses. In the food industry, as in other sectors, private equity groups have developed a reputation for stripping assets, cutting jobs and saddling businesses with debt.
"We aren't all like that," protests Oliver Wyncoll, principal at Langholm Capital, a private equity group specialising in mid-market buyouts of companies in high-growth sectors in North Western Europe.
Wyncoll also makes a decent fist of defending the honour of the private equity sector by expressing mild surprise that such a characterisation may exist. Certainly, he is at ease with the ethics of his own company's investment policies. Rather than stripping assets, he says, Langholm is in the business of driving profitable growth and adding value through investment.
"Ours is not a typical asset-stripping or cost reduction fund: we are much more interested in growth and brand. … We are not people that seem to take cost out of businesses. We're not people that look to squeeze. In fact, we do exactly the opposite," he insists. "We're setting a new paradigm for how to invest in businesses, how to support management teams and how to continue and accelerate growth."
And this is apparently what the group has in store for its latest food acquisition, Tyrrells Crisps, which it bought for around GBP40m (US$79.5m) earlier this month.
Tyrrells, which generated sales of GBP13m in the year to March, caught Langholm's eye because it is an "interesting and engaging brand" in a high-growth sector with potential for further development.
Langholm also set its sights on Tyrrells because it is a brand that is very much "on-trend", Wyncoll observes. "The trends that it is consistent with are the big move towards more natural food; food that hasn't been overly processed; food that has very interesting and innovative flavours; and food that is convenient, and snacking is clearly a convenience-driven category. I also think there is a big trend towards provenance: food that has a heritage and an authenticity."
Although it boasts a fast growth rate, Tyrrells is currently quite a small business with limited distribution and production capacity. Indeed, last year former owner Will Chase refused to supply Tesco as it was believed Tyrrells' production would be unable to keep pace with demand. This is a situation Langholm will look to address.
"Small, high-growth businesses need to make sure that they invest ahead of growth so they can meet demand," Wyncoll says. "There is a need to make sure we keep up with demand. We are getting a lot of reverse enquiries from export markets, from farm shops, delis and independent customers and, obviously, from the multiples. We want to make sure that we are ready ahead of when distribution expands - to make sure that we have the capacity to cope."
Outside the UK, Tyrrells already has distribution in more than 30 countries. Going forward, Langholm will consolidate the brand's presence in what it has identified as the key markets of the US, France and Greece.
"We would try and focus our efforts on certain key markets and the ones we are currently performing well in - France, Greece and the States. We will look at other opportunities selectively," Wyncoll says.
Langholm's plans for Tyrrells are clearly to replicate the success it enjoyed with a previous food industry investment, Dorset Cereals. There are a number of parallels between Langholm's acquisition of Tyrrells and its 2005 takeover of the natural cereals and snacks group.
"Dorset was also a product area that was very much on-trend," Wyncoll explains. "It had pretty good distribution and was fairly widely available in export markets and the independent farm shop-deli retail channels, and not so well distributed in the multiples, which is very similar to Tyrrells."
Under the period of Langholm's ownership, "multiple millions" were invested in Dorset to re-brand, re-package and re-launch the product in the premium cereals category. The company's product range expanded from muesli to include porridges, flakes and slices, the number of employees doubled and GBP3m was invested in its manufacturing facility, all of which saw Dorset Cereals grow into one of the leading lights of the upmarket cereal category. Langholm sold the business to Wellness Foods in March for GBP50m, more than a fourfold return on investment.
However, in developing Tyrrells along similar lines, the fund faces some very different challenges. Whereas at Dorset Cereals the biggest issue was creating a brand, Tyrrells already enjoys strong brand awareness. "Tyrrells has a beautiful brand already," Wyncoll suggests. "Will Chase has done a great job in creating a brand and delightful packaging."
The market for premium crisps is growing at double-digit rates and now accounts for about 15% of the UK's entire GBP1.3bn crisps market. But the growth potential in this up-and-coming category means there is also considerable competition.
Tyrrells was the first to introduce root vegetable chips, made from beetroot, parsnips and carrots, and Wyncoll believes that innovation and new product development will continue to be key drivers for the business. "There is lots of scope to take the brand into other adjacent areas," he says. "I won't tell you what they are, but we do have thoughts as to areas in which the brand can be developed over the period of ownership."
So, with the wheels in motion at Tyrrells, Wyncoll seems confident that Langholm and the Tyrrells management team will be able to work together to create value for the fund's investors. Significantly, Langholm is eyeing the same kind of return-on-investment it achieved at Dorset.
And are other such investments in the food sector on the cards too? While Langholm is not a food industry specialist as such, it includes both Unilever and Rabobank among its investors, which Wyncoll believes gives it an important edge.
"Between them they provide us with a lot of information, a lot of insight and a lot of ideas," Wyncoll says. "It gives us a number of unique advantages in identifying trends, identifying good businesses, and once we have identified them creating investment strategies that would be winning and successful."
The fact that Langholm eventually decided to quit and take its profit from Dorset Cereals underlines that even a PEG which disavows the asset-stripping culture may have a different interpretation of "long term" from a major brand company.
However, its success with Dorset Cereals and plans for Tyrrells suggest Langholm may be something of a case apart. And who is to say that with its influential investors from the food industry and an apparently successful model for developing niche companies Langholm could not prove a positive force in other growth sectors of the food industry over the next few years?
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