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November 19, 2013

Comment: Burton’s set to accelerate growth with Ontario Teachers’ backing

Ontario Teachers' Pension Plan, the Canadian pension fund, has taken majority ownership of Burton's Biscuit Co., ending months of speculation over who would walk away with the UK firm. The news provides clarity over the likely direction Burton's will take - confirming a focus on power brands and international expansion, Katy Askew suggests.

Ontario Teachers’ Pension Plan, the Canadian pension fund, has taken majority ownership of Burton’s Biscuit Co., ending months of speculation over who would walk away with the UK firm. The news provides clarity over the likely direction Burton’s will take – confirming a focus on power brands and international expansion, Katy Askew suggests.

Ontario Teachers’ Pension Plan is one of the world’s largest institutional investors with global investments worth around C$130bn. It is also remarkably successful, with a strong track record for performance and an average annual return of around 10% since its inception in 1989.

The Canadian pension fund is no stranger to investing in the food industry. It holds shares in Nestle and Unilever with a value of C$198.8m and C$148.5m respectively. It also has interests in smaller food companies, such as US snack maker Shearer’s Foods.

This week, OTPP struck a deal to buy a majority stake in Burton’s Biscuit Co., the UK firm behind brands including Jammie Dodgers and Wagon Wheels.

OTPP was said to have won through in a competitive auction process that will see it acquire the stake in Burton’s held by private-equity groups Apollo Management and CIBC. In an announcement released yesterday (18 November), the terms of the deal were not disclosed. However, Apollo and CIBC had been looking for a sum in the region of GBP350m (US$562.8m).

Apollo and CIBC had owned Burton’s since 2009. They took control of the company in a debt-for-equity swap with another private-equity firm, Duke Street Capital, which was forced to hand over the company to the lenders that had financed its GBP220m buy-out of the biscuit manufacturer in 2007.

While Apollo and CIBC were the majority owners of Burton’s, the company’s management team also had a small minority stake. Following the deal, management will continue as co-investors in the group.

The relationship between Burton’s manager-investors and the company’s new majority owners is telling. Significantly, when Burton’s was being shopped, it was clear the managers wanted to remain involved in the company – and wanted to find a backer that would add clout to the strategic direction that Burton’s had already embarked on.

Commenting on the news, CEO Ben Clarke said the management team was “delighted” to welcome OTPP on board. “As significant co-investors going forward, it was critical for the management team to find the right partner. With their combination of extraordinary financial firepower, true partnership approach and global expertise, it is clear to me that OTPP are the ideal partner for us.”

Burton’s is the UK’s largest independent biscuit maker, with a stable of brands including Wagon Wheels and the licence to produce Cadbury biscuits. For 2012, Burton’s booked full-year profit before tax of GBP10m and EBITDA of GBP34.6m. Sales totalled GBP333m.

While, in the scheme of OTPP’s overall investment portfolio, this might represent little more than pocket change, Burton’s has been driving some strong profit growth ratios thanks to its turnaround plan. In fiscal 2012, the company booked a 24% rise in EBITDA and a near-50% increase in net profit.

Part of the profit rise can be attributed to a renewed focus on efficiencies and strengthening Burton’s manufacturing footprint. But, in the long run, cost-cutting can only take you so far. Burton’s also plans to grow its share of the biscuit market by focusing on building its brands through innovation and marketing.

The company has stepped away from less profitable own label contracts to focus on branded sales that generate higher returns. As well as Jammie Dodgers and Wagon Wheels, Burton’s portfolio includes Maryland cookies, while it also produces Cadbury biscuits for Mondelez International under licence.

The focus on brands resulted in a 3% decline in revenue during fiscal 2012. But branded sales were up 5% in the period and power brands now account for almost 54% of total sales, the company has revealed.

Burton’s ambitions for growth are not confined to its UK stronghold. Currently, over 15% of the company’s turnover is generated in overseas markets and international has grown at 7% CAGR since 2009. The company has established a distribution agreement with Wal-Mart Stores that it hopes to evolve and extend, as well as striking a deal to enter Canada with Loblaw. In markets as far afield as Russia, Burton’s is pushing Wagon Wheels. And the company plans to continue to grow overseas distribution.

In a recent interview with just-food, Burton’s CMO Stuart Wilson emphasised the company’s international ambitions

“Burton’s is now focused on solidifying the foundations of its international footprint, and ensuring its network and partners can meet increasing demand so that its international strategy will continue to support growth well into the future,” he told just-food earlier this year.

It is in the area of international expansion that OTPP’s financial clout – and clear willingness to invest – will likely have the most pronounced impact.

Indeed, no sooner did OTPP announce its investment in Burton’s, and the head of the fund’s London office is already talking about international M&A.
“We look forward to supporting Burton’s outstanding management team to grow the business in the UK and further into overseas markets,” OTPP’s Jo Taylor said.

“There are many strategic acquisitions to consider in those territories that can enhance these ambitious growth plans. With its portfolio of iconic brands, Burton’s is set to lead the premium biscuit market for some time to come and use product innovation to appeal to consumers looking for delicious treats and snacks inside and outside the home.”

With a clear strategy, strong brands and track-record of driving higher profits – even in today’s challenging trading conditions – Burton’s always looked like a safe bet. Now, with OTPP’s deep pockets and plans to accelerate growth, the message is coming through loud and clear: watch this space.

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