Greencore expands reach in US with Peacock acquisition

Greencore expands reach in US with Peacock acquisition

Greencore, the Ireland-based convenience food group, wants to expand its reach in the US as a national distributor of food-to-go products and has long invested in M&A, as well as the development of manufacturing and distribution structures that extend its regional range. Greencore's move to buy US group Peacock Foods this week was a step-change in this agenda. Katy Askew reports.

Greencore entered the US in 2008, with the acquisition of Home Made Brand Foods. In the eight years since, the company has expanded in the market through focused M&A. In 2012, for example, the group acquired sandwich-to-sushi firm HC Schau & Son and convenience food group Marketfare in the country.

The Ireland-based group has also worked to grow its US business organically. The group has constructed a GBP20m (US$25m) greenfield sandwich manufacturing site in Quonset, Rhode Island, and has invested GBP7m in its Jacksonville, Florida, facility in order to manufacture frozen food-to-go products. 

Greencore moved to address its east coast leaning in 2014, when it announced plans to open its first production facility on the west coast. The company has invested in a site near Seattle that was due to come online in the back half of this year. 

At the time, CEO Patrick Coveney said Greencore wanted to build a food-to-go business with a national rather than regional presence in the US. "We are in the middle of a very rapid scale-up of our business [in the US]... We are evolving towards having a national food-to-go footprint in the United States. It is going to take a while to get there," he said. 

This ambition took a leap forward this week when Greencore announced plans to quadruple its sales in the US on Monday (14 November). The company secured a US$748m deal to acquire convenience food group Peacock Foods. Peacock generates annual revenue of approximately $1bn, which will expand the contribution of revenue generated in the US to 45% of Greencore's total sales, up from the 15% it makes there today. 

As HSBC analyst Damian McNeela notes: "[Greencore's] US business would increase fourfold, meaning it has real scale, and will account for circa 45% of group sales at US$1.3bn / GBP1bn, with scope to grow medium term to US$2bn, doubling group operating profit to circa GBP200m."

The deal is expected to be earnings accretive in its first full-year, Greencore forecast. In the previous fiscal year, Peacock generated EBITDA of US$72m. Greencore said the inclusion of Peacock's numbers should lift its top line by 200 basis points. 

The acquisition is expected to be "broadly neutral" to margins after synergies, Greencore continued. The group forecast it will realise $15m of annual cost synergies via the consolidation of manufacturing and back office, with 90% of these to be realised in 2018. One-time costs, most of which will be registered in 2017, will total $20m approximately.  

Analysts at Ireland-based brokerage Davy said the deal "materially increased" the scale of Greencore's US business. "It substantially broadens both the customer base in convenience foods and the manufacturing footprint and increases group operating profit by more than one-third (pro-forma)," Davy's Jack Gorman and Declan Morrissey noted. 

Peacock significantly raises Greencore's manufacturing presence in the country. It operates seven "well-invested" locations in in California, Illinois and Ohio, where it manufactures chilled, frozen and ambient products. Greencore said the Peacock acquisition improves its automation, project management and packaging formats. 

The spread of Peacock's production facilities also fill in some of the blank spots on Greencore's map. The group's production represents "over four times" Greencore's current capacity in the US. 

This is important because many of Greencore's food-to-go products are fresh items that need to be delivered to the customer in a timely fashion. Simply put, without a national manufacturing base, Greencore would not be able to serve all the locations of national customers such as Starbucks. A broader geographical reach has the potential to make Greencore a more valuable partner to its existing customer base. 

Another pertinent aspect of the Peacock acquisition is it expands Greencore's customer base and opens up the retail channel in the country. 

As Jeffries analyst Martin Deboo notes, the US does not have a retail sector with a national player in food-to-go comparable to Marks and Spencer in the UK. Most US grocers operate regional operations. And, while Greencore's US business does have a successful partnership with c-store operator 7-Eleven, it does not have a large national presence in the chilled or frozen convenience categories in the grocery store. Peacock does. 

The US company has developed co-packing agreements with branded food makers. "The core rationale for the deal to our eyes is that, in the absence of any national player or 'market maker' (a la M&S in the UK) in US food retail, Greencore are securing national scale through accessing large consumer brands," Deboo observes. 

Peacock counts some of the US's largest packaged food makers amongst its clientele. The company produces products on behalf of Tyson Foods, ConAgra Foods, General Mills, Kraft Heinz, Kellogg, Mondelez and Campbell Soup Co. 

Greencore believes the deal leaves it well-positioned to capitalise on growing outsourcing trends in the US. Branded manufacturers are increasingly looking at outsourcing and co-manufacturing as a capital efficient way to increase production or squeeze margins and Greencore said it expects demand for this type of service to continue to rise.

Coveney also stressed the acquisition will strengthen Greencore's US leadership team and the company claimed the deal will provide "greater management depth" in the market. 

The business is retaining all the Peacock senior management team, with the exception of CEO Tom Sampson, who will serve as senior advisor to Greencore for the next two years. Following completion, the Peacock business will be integrated into Greencore's US operations and Chris Kirke will continue to serve as CEO of Greencore USA. 

"The acquisition of Peacock will transform our US business, strengthen our position in high-growth categories, broaden our channel and customer exposure, and add significant scale to our operations. We believe Peacock's success is built on the same fundamental strategy and values that drive Greencore, making products that consumers love, building deep, longstanding relationships with customers, investing in high quality manufacturing capacity, food safety capability and, most importantly, people," Coveney said.