Quorn expected to attract trade and PE interest

Quorn expected to attract trade and PE interest

The starting gun on the race for Quorn Foods is to be fired this week and interest in the UK meat-free business is likely to be high.

Quorn's owner, the private-equity firm Exponent, has hired Houlihan Lokey to run an auction for a company and an information memorandum on the business is to be sent this week to potential suitors.

Companies including McCain Foods, frozen food group Nomad Foods and Alpro owner WhiteWave Foods have all expressed tentative interest in the business, just-food understands. A sale is expected to be agreed by the end of the year.

A report this weekend in The Sunday Telegraph also named Thai food group Charoen Pokphand Foods as a company that has declared an early interest Quorn. A similar report on Saturday from Sky News also touted US food group Pinnacle Foods has a company that could be eyeing Quorn. Both reports put forward a clutch of private-equity firms that could be interested in the business.

just-food understands a mix of trade and private-equity firms have expressed interest in Quorn. The group, owned by Exponent since 2011, attracted enquiries ahead of the private-equity firm putting the wheels in motion for sale when it appointed Houlihan Lokey this spring. Trade interest in Quorn is said to be strong, with a diverse array of candidates. However, there is expected to be at least as strong interest in the company from private-equity suitors.

If accurate, it would not be surprising. Quorn appears to have enjoyed life under Exponent's ownership and the stewardship of former Premier and Kellogg executive Kevin Brennan.

In 2014, Quorn's sales hit GBP150m (US$221.3m) in 2014, up 6.5% on 2013, a year when its revenue had risen 7%. That rate of growth has been maintained in the first half of 2015, with sales up 7% on the opening six months of 2014.

The last year for which profit numbers for the privately-owned Quorn are available is 2013, when operating profit increased 4.6% to GBP11.3m. Quorn did see its losses grow during 2013, with a net loss of GBP15.4m compared to GBP13.8m in 2012. The company's interest expenses grew year-on-year linked to charges when Exponent bought the business.

But the trajectory of Quorn's top line is clear to see and the company is seeing growth at home and abroad. In the US, sales jumped 30% year-on-year in the first half of 2015 as the company benefited from a sales office it opened in Chicago in late 2013. That said, competition in the US meat-free category is fierce, with close rival Gardein now owned by Pinnacle and recent NPD activity from the likes of Beyond Meat and the now Kraft Heinz Co.-owned Boca.

Quorn's sales in Europe rose 9% in the first half of 2015, with double-digit growth in the Nordics and in the more recently-opened Germany. The company is also conducting a test launch in France though listings with Carrefour.

At this stage, it is hard to pick which suitor could end up as Quorn's new owner. For one, no formal bids have been tabled. However, looking at the early runners and riders, there are obvious reasons why the frozen-focused McCain and Nomad would want to add Quorn to their portfolios. Nomad's M&A ambitions are clear, announcing its entry into the food sector in April with the acquisition of Iglo Group - the owner of Birds Eye in Europe - and following that with last month with news of a deal to buy much of Findus Group's assets in Europe. The company, set up by US businessmen Noam Gottesman and Martin Franklin, is said to be looking for its next targets.

WhiteWave has a raft of free-from assets, from Alpro in Europe to Silk in the US. In June, the group announced the acquisition of Canadian plant-based food maker Vega. It only a small presence in frozen, gained through its purchase of plant-based beverages, creamers and frozen desserts maker So Delicious in 2014. That said, its recent activity underlines its interest in M&A.

Pinnacle's interest in meat-free was made plain last year when the owner of Birds Eye in the US snapped up Garden Protein International, the Canadian company behind the Gardein brand. However, Pinnacle itself has been touted as a possible target for the acquisitive Nomad.

Could Hain Celestial be interested? As the owner of UK-meat free brand Linda McCartney and supplier of own-label lines in the category to retailers in the country, perhaps there could be anti-trust concerns there.

And all that is without mentioning possible private-equity candidates. Buy-out houses interested in consumer goods are likely to be looking very closely at a business continuing to enjoy solid growth 

Quorn has riden the growing interest among consumers in cutting back meat consumption effectively. With that trend showing little sign of easing, the business is likely to be seen as an attractive addition to portfolios.