Blog: Dean BestPrivate equity ready to fill up on food?

Dean Best | 20 May 2010

Private equity looks once again to be ready to tuck into the food sector.

The credit crunch and then the broader economic crisis put the brakes on M&A in the food industry, with trade and private-equity buyers alike finding it tough to raise finance for acquisitions.

According to data from UK-based corporate advisers Oghma Partners, financial buyers have so far had a "subdued" 2010, with their share of transactions in the UK food and beverage sector remaining close to 20%.

"Financial buyers as a group of acquirers have, in general, found it difficult to compete on a valuation basis given the more limited leverage available. Corporate buyers have been put back in the driving seat for most deals with synergies open to them which most financial buyers simply can’t access," Oghma Partners says.

However, the lull in proceedings could be coming to an end - and, if the rumours circulating throughout the sector are to be believed, the biggest private-equity players are ready to pounce.

Some have moved already: earlier this month, UK discount retailer Poundland was sold to private-equity firm Warburg Pincus. The price tag was never officially announced but was said to be around the GBP200m (US$289.1m) mark.

Langholm Capital, already owners of upmarket UK crisp maker Tyrrells, backed a management buy-out at herbs supplier Barts Spices.

However, some bigger deals in Europe could be on the cards.

In France, private-equity companies are said to be eyeing MWBrands, the owners of brands including John West tuna.

In Italy, Unilever is looking to sell frozen-food business Findus Italy and a clutch of private-equity firms have been mentioned as potential suitors - including Birds Eye Iglo owner Permira and Lion Capital, already the owners of Findus assets elsewhere.

In Spain, one of the country's largest bakery groups, Panrico, itself already owned by private-equity firm Apax Partners, could, according to reports, be set to change hands.

The attractions of food companies are obvious. The sector has been affected by the downturn but it remains recession-resistant and even those companies who have particularly suffered, like Spain's Panrico, own brands popular with consumers.

And brands popular with consumers can demand a decent price tag when the private-equity owner is ready to sell on. Witness the rumoured US$200m that Lion Capital made when it sold Kettle Foods to US snack maker Diamond Foods in February.

It has been a quiet 12-18 months for private-equity deals in the food sector. But there are some tentative signs that private equity could be back in the game - giving those in the trade, be they potential buyers or sellers, plenty to chew on.


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