UK-based consumer goods group PZ Cussons this week struck a surprise deal to buy Australian baby food business Rafferty’s Garden. Analysts have suggested the acquisition is not a sign PZ Cussons plans a significant push into food and see the deal as one that can support its core home and personal care businesses in the region. Michelle Russell reports.

PZ Cussons paid GBP42.2m (US$64.1m) to buy Rafferty’s from Australian private-equity firm Anacacia, the company revealed on Tuesday (2 July). The deal marks PZ Cuzzons’ entry into the food and nutrition category in Asia-Pacific and comes just a month after the Australian Competition and Consumer Commission blocked Heinz from buying the company.

The acquisition was a surprise due to the relatively small food operations currently in PZ Cussons’ portfolio. PZ Cussons’ food business includes Greek olive oil and spreads brand Minerva, a dairy business in Nigeria through a venture with Glanbia and a food ingredients business with Singapore-based Wilmar International in the country, through which they produce edible oils and nutritional spreads.

But the bulk of PZ Cussons’ business remains in home care, personal care, beauty and electrical products.

The acquisition could be seen as something of a step-change for PZ Cussons, given its strong focus on personal care. While FMCG giant and rival Unilever is selling off some food assets to focus on home and personal care, it seems PZ Cussons sees the benefit of expanding in food.

Shore Capital analyst Darren Shirley suggests the deal could be more about Cussons eyeing an opportunity for strategically growing its main business, rather than a way of expanding its food operations.

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“I wouldn’t say food is in any way a target market for them. It’s more about geography and building on the distribution capability they’ve got in the area. They’ve been looking for a long time now to do deals in emerging markets, particularly in Asia, to build on the systems they’ve got there but the valuations that have been asked have been far too high.”

However, Shirley says that although food is not a core category for PZ Cussons, the group has “some experience” in the sector and therefore the acquisition of Rafferty’s “makes sense”.

He also points to PZ Cussons’ existing business Asia and suggests the deal with Rafferty’s was certainly a strategic one.

“They’ve got a decent-sized business already in Australia so they have an existing business management team out there. What’s interesting is, there’s an embryonic export business within Rafferty’s targeting south-east Asia markets, particularly Indonesia and Thailand and PZ Cussons have got a very strong capability in Indonesia.”

Shirley says Cussons’ distribution capability in those regions would be “second maybe only to Unilever”, but said the acquisition could boost that.

“They’ve been looking now for a number of years for brands in the region to distribute through the capability they’ve got and this [acquisition] gives them an opportunity there. In Indonesia the company has Cussons Baby [personal care], which is the market leader within the baby care category so the deal compliments them geographically and it compliments them in that they’ve already got that exposure to the baby market over there.”

Numis analyst Charles Pick concurs, believing the acquisition to be a “sensible expansion move” by PZ Cussons that will offer some synergies with the group’s distribution capabilities in Indonesia and Thailand.

Rafferty’s holds a 40% share of the wet baby food market in Australia and also has growing shares of the infant dry and snacks market. Established only six years ago, the company is on a strong growth trajectory and has taken share from market leader Heinz, which according to Numis is now equal number one at 40% with its pouch products.

Rafferty’s export business is in the early stages of development to countries such as Indonesia and Thailand, and all its manufacturing is currently outsourced to third parties. Its revenue and EBITDA for fiscal 2012 was GBP22.5m and GBP3.5m, respectively. 

Indeed, Pick suggests PZ Cussons can aid the brand’s distribution. “Growth scope is felt to remain in Australia (Rafferty’s Garden has been moving into the infant lunch box segment and has an active programme of NPD), whilst Cussons’ distribution network for its existing Cussons Baby band can be used to boost sales in Indonesia and Thailand.”

This deal is the latest of a string of infant food buyouts of late. In May three deals were struck, with Hain Celestial buying organic baby food firm Ella’s Kitchen, while Campbell Soup acquired infant food maker Plum Organics and Danone bought baby-and-toddler food company Happy Family.

PZ Cussons is another that has been attracted to baby food but whether PZ Cussons has its eye on further expansion in food/ingredients in general or its agenda is firmly on geographic expansion of its core business is not yet clear.

Shirley believes we are unlikely to see any further M&A deals in the food category from the company in the near future.

“I’d be surprised if we did. Their key areas of focus are first of all brands, but brands in the personal care category and also particularly in the beauty category, which is higher margin. This [Rafferty’s] deal is pretty distinctive, but I wouldn’t expect them to be engaging in further food deals going forward.”