By buying Weetabix, which has a strong presence in the UK and Ireland only, Hicks Muse is following the opposite strategy from the top global food groups. Nestlé and Unilever are betting brand preferences will become increasingly globalised, but Hicks Muse believes people will stick with the brands they know. In this case, the VC firm may well be right.
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US-owned private equity group Hicks, Muse, Tate & Furst has agreed to buy UK cereals firm Weetabix for £642m (US$1.1bn). The group will merge Weetabix with its existing UK business, Premier Foods.
There is an obvious logic to the deal. Hicks Muse has built up a sizeable UK ambient food portfolio since it acquired Hillsdown Holdings in 1999 – partly through buying out small food companies, and partly through picking up minor brands from global food groups. The biggest such deal was the acquisition of Branston Pickle (and many others) from Nestlé last year.
Weetabix complements these businesses well. It has strong brand equity in the UK and Ireland (like most of the other Premier Foods brands), with some presence in mainland European markets. The key benefit from the takeover is to strengthen the merged group’s clout with retailers; there may also be scope for manufacturing cost savings.
What will happen in the longer term? Hicks Muse’s investment strategy is to buy undervalued businesses (such as phone directory group Yell), build them up, and float them on the stock market. With Premier Foods, the group has built a major UK-focused food company out of parts that could not compete on their own.
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By GlobalDataHicks Muse is following the opposite strategy to the global food giants. As they sell off some local brands and rebrand others in line with their global strategy (a recent example is Unilever’s decision to rename its UK olive margarine Olivio to its global olive margarine brand Bertolli), Hicks Muse is building a stable of brands that are hugely popular in the UK and Ireland and have little presence elsewhere.
In short, Nestlé and Unilever are betting that consumer preferences will become more globalised; Hicks Muse is betting that people will remain attached to the local brands they grew up with. Particularly in the low-growth sectors where Premier Foods is strongest – UK breakfast cereal sales grew at just 2.3% in 2001-02 – the venture capitalists may well have the right idea.
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