Dean Best weighs up the possible runners and riders for Grenade, the UK sports-nutrition business that could be set for fresh ownership.
Alan Barratt, the founder and CEO of Grenade, wants his company “to be the Red Bull of sports nutrition”, for his buoyant business to have the ubiquity of the energy-drink brand.
Barratt and his wife set up UK-based Grenade in 2010, with the company, following a deal two years ago, now having private-equity firm Lion Capital as its majority owner.
It is understood Grenade is being prepared for sale with advisers having been appointed. Which suitors might believe Grenade could provide their business with the necessary ammunition to compete in a growing but crowded healthy-snacking market?
UK daily newspaper The Daily Telegraph reported two weeks ago Grenade, based in the English Midlands, was being lined up for a sale this year. Lion Capital bought a majority stake in Grenade in 2017 from the company’s founders and fellow private-equity firm Grovepoint Capital in a deal that valued the protein bars and shakes supplier at GBP72m (US$88.7m).
Lion Capital and Grenade have declined to comment but just-food understands sell-side advisers have been appointed in the shape of Harris Williams. The US investment bank did not return a request to comment for this article.
The growth of sports nutrition products on the shelves of UK supermarkets in recent years has been eye-catching, driven by growing interest in food and drinks to support more active lifestyles. The core consumers of gym-goers, cyclists and runners remains in growth but what has fuelled the market in the UK – and in other countries – is the less avid, more mainstream consumer wanting to become more active and looking for products to drink or snack on. And that mainstream interest has prompted companies like Grenade to take their product ranges into more conventional product areas.
Within the category in the UK, Grenade has built a notable position, launching into Tesco just two years after the business was set up and building a range of products around its Carb Killa sub-brand that also take in biscuits and flapjacks, as well as the core bars, shakes and supplements.
In April, research from investment bank Alantra showed Grenade was the second fastest-growing, privately-owned food and beverage company in the UK.
And Grenade quotes research from IRI that reveals that, as of June 2019, its Carb Killa protein bar was outselling all chocolate bar brands except two in UK supermarkets – a sign of both the more mainstream interest in its products and the company’s success in capitalising on that demand.
“I think quite a lot of participants would sign the non-disclosure agreement and see the colour of Grenade’s money and whether it fits their business or not. I think there would be quite a lot of initial suitors,” Clive Black, the head of research at UK stockbrokers Shore Capital and a long-standing analyst of the UK grocery market, says.
In first Grovepoint and then Lion, Grenade has already had investment from two private-equity houses. Is the next investor likely to be from the financial community or a trade buyer?
“I think it is more likely to be another financial buyer. The large PE players are still hunting around for attractive targets and Grenade will tick a lot of their boxes. They generally don’t take a very long-term view of life and no doubt will think there is enough upside potential in Grenade to justify a premium price,” Julian Wild, a corporate finance partner at law firm Rollits, suggests.
However, one M&A banker approached by just-food said the focus of the process was on trade suitors. “My sense was that this process would be heavily geared the more globally-focused, consumer trade buyers. Let’s say I have it on good account that that is the aim,” the banker, who does not wish to be named, says.
Earlier this year, Harris Williams advised UK snacks firm Nature Delivered on the sale of its business. Nature Delivered traded as Graze and it chose to sell up to FMCG giant Unilever. Before acquiring Graze, Unilever had little presence in snacking products but its move for the business was an indication of how the snacking trend is entrenched in the way many consumers in western (and a growing number of emerging) markets consume food.
Therefore, whereas perhaps in years gone by any consideration of the possible runners and riders for a sports-nutrition business would zero in on the larger players in that field, now one has to weigh up others that may traditionally have done business elsewhere in the food industry and, which, like all companies, are looking to boost their top line through the acquisition of growing, on-trend businesses and brands. And given the Harris Williams connection, it wouldn’t be a surprise if Unilever did not at least get a call about Grenade.
In that context, companies in the wider snacking industry could be interested. PepsiCo is the largest supplier of savoury snacks worldwide but last October announced the acquisition of “superfood” snacks maker Health Warrior, a US company that has protein powders, bars and muffins in its product range.
Ferrero has been very acquisitive of late, albeit in the more indulgent ends of the snacking universe, building a significant business in the US through M&A, snapping up assets from companies including Nestle and Kellogg. Could the privately-owned, Italy-based business want a more health-oriented brand to broaden its scope in snacks?
Hershey has long spoken about what it calls the “snacking continuum” and how that has grown to take in myriad categories and segments. And its M&A activity has walked the walk, with the acquisition of US meat-snacks business Krave Pure Foods in 2015 perhaps the stand-out deal but also followed up with other transactions, most notably two in recent weeks, the purchase of US nutrition-bar firm One Brands and the minority investment in Irish snack vitamin and protein bar business Fulfil. Unlike PepsiCo, however, Hershey remains a US-centric business, which could make a move for a Grenade, that generates 80% of its sales in the UK, less likely.
There are two US-headquartered players with a solid presence in the UK that should not be discounted in any discussion over the possible suitors for Grenade (with the usual caveat that no companies have made any on-the-record comments about any interest or otherwise).
And, like PepsiCo, both are in breakfast cereal. Kellogg has made significant investments in snacks during this decade as sales of cereal in developed markets have gone soggy, notably the 2012 mega move for Pringles and, more closer to the kind of segment in which Grenade does business, the $600m purchase of US bar business RXBar in 2017.
A key competitor for Kellogg in the US breakfast-cereal market is Post Holdings – and it became so, too, on the other side of the Atlantic in 2017 when it snapped up UK-based business Weetabix (from Grenade majority shareholder Lion Capital).
“Breakfast cereals are declining quite markedly. Creating countlines reminiscent of their cereal heritage has been a big move. I would have thought an element of the breakfast cereal market will look at it and therefore Post comes to mind,” Black says.
Post, too, has experience in sports nutrition – or “active nutrition” as the company calls the category – with brands including PowerBar. That said, last November, Post announced plans to spin off the business into a listed company.
Whether that could preclude a move for Grenade is a matter of debate. “I’m not sure they have the bandwidth to go for this,” the M&A banker says. “But in terms of their broader product portfolio and all that Grenade does, there seems to be a good match.”
As well as Post, there are other notable players in sports/active/performance nutrition that may at least look at Grenade. Ireland-based Glanbia had its origins in dairy but has built a significant performance nutrition business, centred on the US. “I would put Glanbia in there, with the caveat that they’re not going to pay an outrageous price – it will be price-dependent for them – but they know the business well,” the banker says.
And, in the last four years, two UK-based food companies have built positions in sports nutrition via M&A – Samworth Brothers, which acquired the SCI-MX business in 2015, and Associated British Foods, which added two small firms H5 and Reflex Nutrition to its basket of disparate grocery goods in 2017. The question for both is whether they are happy to grow these brands organically or did they make these acquisitions as a platform for a wider play in sports nutrition.
In all, the growth of Grenade and of the wider category in the UK suggests on paper there could be a decent level of at least early-stage interest in the business. Any suitor, though, would have to consider how growing demand, while it has attracted increased shelf space from retailers, has led to fierce competition. And that’s before thinking about how in reality Grenade’s Carb Killa protein bar is competing with a whole range of healthier snacks for the attentions of the more mainstream consumer. Snack bars offering different healthy attributes are launched and listed almost weekly.
“[Grenade] is a brand that’s got a lot going for it but it’s a congested area,” Shore Capital’s Black says. “There’s been a lot of shelf space given by a whole variety of distributors from supermarkets to forecourt retailers and WHSmith airport sites to these products – but that space has also attracted a lot of players. In that respect, they really are going to have put their best foot forward to attract a good price.
“It’s an area where a lot of space has been allocated by retailers and distributors and that space has been filled by an enormous number of players, who are portraying as health and protein bar manufacturers. There’s line after line after line. To get a dominant brand position and to get a status of a must-have brand, it will mean quite a lot of marketing expense to support that on an ongoing basis. And then do you get the capital return and the value behind it?”