The private-equity owners of Burton’s Biscuit Co. are “considering options” for the UK’s second-largest biscuit maker, a process that could lead to an eventual sale. Katy Askew takes a look at the players for whom an acquisition of Burton’s could hit the sweet spot.

It emerged last month the owners of Jammie Dodgers and Maryland Cookies maker Burton’s Biscuit Co. have launched a strategic review of the UK biscuit firm. In a process that could end in a sale of Burton’s, Apollo Management and CIBC have hired advisers from Credit Suisse to help them look at their options for the business, which they have owned since 2009.

The review is still in its early stages and there is no indication of how long the process could take. However, one industry insider tells just-food the private equity firms are attempting to ascertain whether there is enough appetite in the market for the biscuit maker before moving to put Burton’s on the block ahead of a future sale of United Biscuits, which also looks on the cards.

“They are testing the market,” the source tells just-food on the condition of anonymity. “The timing is interesting because it seems they want to get in ahead of a likely sale of United Biscuits.”

United Biscuits is the UK’s largest biscuit maker. The Jaffa Cake maker was split from its salty-snacks business by owners Blackstone and PAI Partners, after an aborted attempt to sell the whole business in 2010. It is understood a further move to sell off the UB biscuit business is unlikely to take place for some time, as Blackstone and PAI raised liquidity through the salty snacks sale to Intersnack last year.

If and when Burton’s is indeed auctioned off will therefore depend largely on how much interest there is in the biscuit firm.

Industry opinion is divided over whether the potential sale will attract a significant level of trade interest, particularly given the UK biscuit scene is dominated by a few large players who would likely be barred from any takeover by competition issues.

M&A specialist Stefan Kirk of Glenboden is sceptical, pointing to UB’s difficulty in selling its business as a going concern last year. “Since its LBO in 2009, has anything changed in the biscuits landscape to suggest there’s now a strategic player out there willing to spend, illustratively, EUR400m (US$520.5m) on a branded biscuits asset in Europe?” he asks.

While Kirk says there are trade players who could be interested in acquiring Burton’s, he emphasises another potential outcome is a sale to private equity.

However, Grant Thornton’s Charlotte Ashton says there are a number of factors that could work to dampen excitement for the deal in PE quarters.

Apollo and CIBC took control of the business in 2009 in a debt-for-equity swap with Duke Street Capital, which was forced to hand over the company to the lenders that had financed its GBP220m (US$286.3m) buy-out of Burton’s in March 2007. The deal left Duke Street with a small stake in the firm, alongside some very significant losses.

“From a PE perspective given the SBO history with this business and the financial restructuring that has occurred [Duke Street still have a small stake] this may turn PE off,” Ashton tells just-food.

However, Ashton adds: “There is a potential angle for restructuring funds such as Endless, who are likely to be busy implementing their plans to turnaround the Vion assets in the short term. There could be US PE interest given the exchange rate benefit.”

Ashton also anticipates overseas interest from the likes of China’s Bright Food and Wahaha. Both companies have eyed UK businesses. Last year, Bright Food bought 60% of Weetabix, while Wahaha lost out to Intersnack in the UB salty snacks sale.

The main reason for this overseas interest is the strength of Burton’s brands, which include Maryland and Wagon Wheels.

Speaking to just-food in a recent interview, Burton’s CMO Stuart Wilson revealed management is currently intent on expanding the footprint of its “power brands” through new products and formats as well as expanding distribution and capabilities. The company has gained share domestically, with power brand sales up 16% since 2009, while international sales were up 15% last year, rising to 15% of total revenue. 

The potential to extend the brands overseas could – possibly – increase the group’s appeal to an overseas buyer. A key rationale behind Bright Food’s acquisition of a majority stake in Weetabix, for instance, was the group wanted to take control of a trusted western brand it would then be able to expand in its high-growth domestic market.

Meanwhile, Chinese-based Wahaha has said it is actively seeking investment opportunities that would increase its overseas exposure. The company has said it aims to expand in markets including Europe and the US, where Burton’s has a growing presence. Burton’s could therefore provide a foothold for Wahaha in the UK, Europe and US. Wahaha would be able to leverage this in order to further its goal of exporting its own products to these countries.

Burton’s largest brand by sales is Cadbury, which it produces under license from Mondelez International. Cadbury sales increased by 26% in fiscal 2011 and the company said last year the brand was one of the main factors driving its sales growth in the period, which rose to GBP3.2bn from GBP3.1bn.

The link to Cadbury has prompted many to speculate that Mondelez is a likely candidate to take on the Burton’s business. Indeed, the firm has indicated it will raise capex to 4-5% of sales this year, up from its current level which is shy of 4%.

Some of this increased level of investment will be to fund bolt-on acquisitions, CFO Dave Brearton told analysts and investors at the Consumer Analyst Group of New York conference in February. However, he emphasised the group was firmly focused on emerging markets, where it aims to add scale and increase distribution categories. It is therefore questionable whether Mondelez’s interest would stretch beyond the Cadbury brand.

Family-owned Bahlsen has also been cited as a potential acquirer for Burton’s, although it remains unclear whether the German group, which sells Leibniz-branded biscuits in the UK, is focused enough on expanding in the UK market to want to invest significantly in the country.

Meanwhile, some have suggested Campbell Soup Co. could also throw its name in the hat. The US convenient meal manufacturer has biscuit operations in the US and Australia and is increasingly investing in M&A to fuel expansion. The company has said that it plans to strengthen its hand overseas, it has emphasised that it plans to use acquisition to enter “high growth” categories.

While UK biscuits is not as fast growing as almost any emerging market category or sectors in developed markets that are focused on health and wellness, the sector is nevertheless witnessing healthy expansion. Last year, biscuit volumes growth of 3.1%, pushed values up by 4.5% year-on-year. Moreover, Mintel predicts the biscuit market value overall will grow by 21% to reach GBP1.7bn by 2016. The room to expand sales in this growth sector could well prove tempting to the likes of Campbell. 

Finnish group Raisio is viewed as another candidate. The group has looked to increase its clout in key markets and refocus its portfolio towards consumer food brands, completing four acquisitions over the past three years – including Big Bear and Glisten in the UK. Burton’s confectionery business could well seem like a good fit to the Finnish firm.

However, as CEO Matti Rihko told just-food in an interview earlier this year, while Raisio certainly has the financial wherewithal to pursue Burtons, with a war chest of around EUR400m readily available, the group believes its “optimal” deal value stands at EUR50-100m. Moreover, Rihko suggested the company is currently focused on improving profitability by focusing on the “low hanging fruit” of driving synergies. 

Other potential trade buyers could take the form of PepsiCo and Kellogg, which occupy the number one and number two positions in savoury snacks globally. However, while PepsiCo has said it is considering smaller scale M&A to fuel emerging market growth and Kellogg has used deals to transform its portfolio and increase its prominence in snacking aisles, it is unclear whether either firm plans to expand its footprint in the sweet snacks sector.

Meanwhile, John Spayne, partner at Spayne Lindsay & Co., tells just-food there is “always room for a maverick”. Spayne points to Boparan Holdings, the parent company of UK firm 2 Sisters Food Group and owner of the Fox’s biscuit brand. The highly-acquisitive company has rapidly expanded through M&A in the UK food sector and, although it warned on weak conditions in its latest quarterly update, the group seems happy to continue to increase its investment in acquisitions, having recently bought up a significant chunk of Vion’s UK meat busienss.

Looking at the possible value of a deal, Spayne says Burton’s exposure to private-label sales means the group is unlikely to command a premium as high as UB’s snack unit. “UB sold KP Snacks for about 9.2x EBITDA.  Expect a bit less for Burton’s because it has a big chunk of private label business and biscuits is not growing as fast as snacks,” he tells just food.