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May 23, 2013

Deal or no deal: UK crisp firm Tyrrells could attract snack majors

Private-equity firm Langholm Capital was this week reported to have put UK crisp group Tyrrells on the market. Langholm has declined to comment on the reports but the investment firm are said to have put a GBP100m (US$151.9m) price tag on the company.

Private-equity firm Langholm Capital was this week reported to have put UK crisp group Tyrrells on the market. Langholm has declined to comment on the reports but the investment firm are said to have put a GBP100m (US$151.9m) price tag on the company.

Langholm, which acquired the Herefordshire-based business five years ago from potato farmer William Chase, is understood to be in talks with corporate finance advisers McQueen over the potential disposal. Sales memorandum were said to hve been sent out to potential suitors last week, and first-round bids are expected next month.

A number of companies have been mooted as potential bidders, including cereal giant Kellogg, UK confectioner Tangerine, Germany’s Intersnack and Japanese snack firm Calbee. None of the companies returned a request for comment but the list has garnered a mixed reaction from analysts.

Glenboden analyst Stefan Kirk has his cards on Kellogg. “Overall I’d plump for Kellogg; for them Tyrrells would add value to the Pringles portfolio,” he tells just-food.

However, he questions whether the timing would be right for Kellogg and wonders why it did not buy United Biscuits’ KP Snacks arm to become a “strong number two” in the UK snacks market, allowing Intersnack to catch up instead.

“I was surprised Intersnack bought KP Snacks instead of Kellogg,” Kirk tells just-food. “They’re more a serial acquirer of smaller businesses; I can specifically mention interest in Raisio’s Dormen brand which, like Tyrrells, is a premium offering.”

In that respect, Kirk believes Intersnack might be interested in purchasing Tyrrells. However, he adds: “If the acquisition of KP Snacks means they don’t currently have the funds for another deal for a while, then they may regret having the mature Hula Hoops but missing out on the high-growth Tyrrells.”

Kirk does suggest Finnish food group Raisio as a potential buyer. “They’ve been very acquisitive in the UK in recent years – Glisten, Big Bear, UK-owned Candyplus – and have a very open-ended definition of better-for-you snacking.”

Another analyst that wished to remain anonymous said the idea of Kellogg or Tangerine buying Tyrrells would be “highly unlikely”.

“Certainly for Tangerine, it would be a big step into a completely different sector of the snacking market. It seems to me it would offer no genuine synergies at all, and to some extent may make it less attractive as an investment for someone in the future.”

The analyst says any deal with Intersnack might raise competition issues and argues a deal with Kellogg is “more likely.” He does, however, ask: “Are [Kellogg] getting something they haven’t got already with Pringles? I wouldn’t classify [Tyrrells] as a particularly international brand.”

Any potential deal for Tyrrells could earn Langholm around GBP100m, if reports are to be believed. This would be a premium at around triple the firm’s annual sales.

Under chief executive David Milner, Tyrrells’ profits have grown more than 20% per year. Iin the 12 months to the end of March, the company earned GBP5.06m (US$8.1m), a 53.3% increase on the prior year period.

The company, which has evolved somewhat since starting out as a sideline on a Herefordshire farm, will undoubtedly be seen as an attractive purchase by some. The firm has made no secret of the fact it has its eye on overseas growth opportunities. Exports have been a focus for Tyrrells for the past four years and has become the fastest growing part of its business.

Overseas sales are expected to account for half of total revenue at the company in the next three years, Milner told Insider earlier this month.

Speaking to just-food earlier this year, Tyrrells head of international, Laurence Bass, said the group’s key focus markets were France, Germany, Holland and North America.

“Our business is also growing phenomenally across, Scandinavia, Switzerland and the Middle East,” he said.

The company has also recently employed someone based in Thailand, covering the Asia region where China is a focus for the firm, as well as Singapore, Hong Kong, Malaysia and Japan. Turkey and Brazil are also on Tyrrell’s radar.

Despite the firm’s international focus, however, our unnamed analyst believes it would be the firm’s success in the UK market that would attract potential buyers rather than its overseas ambitions.

“People are more likely to want to buy [Tyrrells] for the opportunities in the UK market rather than overseas. The main pull will be the UK. The opportunity to grow outside the UK is great but it wouldn’t be the main reason.”

Regardless, the analyst suggests the list of buyers is likely “shorter than might be hoped for”. He adds: “To get a premium multiple is unlikely. It’ll be interesting to see what the end price will be.”

Whichever company is vying for the crisp maker, Kirk thinks snacks is a category better suited to a “strategic buyer”, rather than a private-equity firm like its current owner.

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