Bernard Matthews Farms has admitted it may look for outside investment and 2 Sisters Food Group is reportedly considering a bid for the business. Industry watchers believe the UK food giant is the prime candidate to acquire the poultry processor. Michelle Russell reports.

2 Sisters Food Group, the largest supplier of poultry to UK supermarkets, is understood to be in the early stages of weighing up whether to make an offer for Bernard Matthews Farms, according to The Sunday Times. The Norfolk-based turkey giant is said to have been holding discussions with several potential new investors.

While not commenting on the identity of those it has sat down with, Bernard Matthews has again reiterated it is exploring the possibility of an external cash injection into the company in a bid to boost growth.

The possibility of outside investment follows some troubled times for Bernard Matthews, which have included an avian flu outbreak and a slide in revenues. In the 12 months ended 1 July 2012, sales were GBP341.4m. In the previous reporting period, the 18 months to 3 July 2011, the company booked sales of GBP470.8m. It also offered a cautious outlook on 2013 due to rising feed costs and poor consumer sentiment.

Last month, the firm revealed it was in talks to potentially make around 55 job cuts at its Great Witchingham cooked meats site in Norfolk. The move is being made in a bid to make the business "as efficient as possible" and ensure a "sustainable" future for the whole workforce.

The company has also had to deal with the departure of CEO Noel Bartram, who stepped down from the business last month. The company said Bartram had reached 60 and had some recent health concerns. It came at the same time that chairman David McCall left the company and followed the recent resignation of Rob Mears as managing director.

Despite the bumps in the road for the turkey processor, it did return to profit in 2012. Set up in 1958, it was floated on the London Stock Exchange in 1971 before being taken private by the Matthews family in 2001. It employs around 2,000 and made a pre-tax profit of GBP2m in 2012.

The speculation now is whether, even though Bernard Matthews has admitted it could look for a cash injection, it could end up being taken over.

A number of candidates have been mooted and 2 Sisters appears the most likely. A deal to buy the turkey producer would see 2 Sisters owner Ranjit Boparan, known as "the chicken king", cement the company's position as one of the biggest food producers in the UK.

As the UK's largest chicken processor, 2 Sisters recently acquired the poultry division of Dutch food group Vion. In 2011, 2 Sisters made two purchases away from poultry, with the acquisition of Premier Foods plc's own-label Brookes Avana business and, most notably, the purchase of Goodfella's pizza and Fox's biscuits manufacturer Northern Foods.

Euromonitor senior food analyst Ildiko Szalai believes an acquisition of Bernard Matthews would make sense. She suggests 2 Sisters could be on the look-out for a branded poultry business.

"2 Sisters is really growing and has been acquiring since 2011," she tells just-food. "They are directly supplying retailers and foodservice from British Airways to Costa, and these are very low margin. Now they may be financially stable enough to buy a brand and break into a higher margin segment."

Szalai says an acquisition of Bernard Matthews would see 2 Sisters acquire a "high ranking brand name" and it would enable them to expand on an international level.

"[2 Sisters] are already manufacturing in Poland and Holland but they don't really have a branded asset with high brand equity to add innovation and operate at a higher margin. So they are probably on the look-out for a brand which is currently strong, fits into what they are doing anyway and which is marketable in international markets. That is why they might be going after Bernard Matthews."

Shore Capital analyst Clive Black also suggests 2 Sisters could be a credible candidate.

"2 Sisters is a very effective operator and we believe it could add considerable value to the Bernard Matthews business, albeit that business has challenges and any returns would be dependent, as ever, on the price paid and the ongoing capital needs."

While 2 Sisters appears the most likely candidate, the company's flurry of acquisitions in recent years could have impeded the firm's ability to make another purchase at the present time.

Szalai believes it could go either way. "2 Sisters might be very strong financially and that's why they were able to make these purchases or they may have overstretched themselves with previous acquisitions and they might not have any more cash. But because these acquisitions are well integrated and generating revenues, that could be a sign that they are ready for the next one."

There is also the possibility that any potential acquisition could raise competition concerns given the size and standing of both companies.

Black says: "Given recent activity (e.g. Britvic-Barr and Booker-Makro) where we struggled to see justification for a referral, a view backed up by virtually no recommended remedies, it is hard not to believe that the competition authorities would not be interested in any such combination."

Aside from 2 Sisters, Marfrig's European arm Moy Park and UK chicken processor Faccenda Group could also be possible investors or bidders.

Moy Park commands a large slice of the UK poultry market. According to its website, it is the UK's largest producer of organic and free range chicken.

Faccenda acquired the UK's second-largest turkey producer, Cranberry Foods and, combined, the companies generate an annual turnover of around GBP400m. A privately-owned business, it employs around 1,700 people across its UK processing plants, farms and feed mills.

It is also possible Bernard Matthews could fall into the hands of a private-equity firm. Black, however, appears to have his money on 2 Sisters.

"As to other suitors, we do not see an extended list. Much again depends upon price and ongoing investment needs, albeit Bernard Matthews remains a well-known brand with considerable virtues despite some setbacks in recent times."