Private-equity giant Permira has snapped up Medora Snacks and Ideal Snacks Holding, two US companies focused on healthier products. John Coyle, a partner at Permira, talks to Dean Best about why the firm has bought the businesses, the potential for healthier snacks and its plans to expand its new assets.

Seven weeks after Permira announced the sale of its flagship investment in food, the European frozen food giant Iglo Group, the private-equity firm this month disclosed its latest move in the sector, acquiring US snacks businesses Medora Snacks and Ideal Snacks Holding.

Permira has retained an interest in Iglo, holding a 9% stake in the company's new owner Nomad Holdings, and remains ready to make investments across the industry.

However, the moves for Medora, the owner of brands including PopCorners popcorn and PopCrinkles, and contract manufacturer Ideal – and establishing BFY Holdings – are the latest signs of a key focus for investments at Permira: health and wellness.

Speaking to just-food, John Coyle, a partner at Permira, reveals the firm's interest in health-focused assets "started about three years ago".

"The world is getting older but wants to be younger, look younger, feel younger and live younger – and is increasingly focused on prevention, rather than treatment and eating better, not all the time but at least some of the time," Coyle says.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Last year, Permira acquired Canada-based Atrium Innovations, a vitamins, minerals and supplements business. Coyle says Permira has had "good success" with Atrium Innovations, which "really opened our eyes" to opportunities to invest in food businesses targeting consumer interest in healthier products.

There is, Coyle says, a further appeal to companies like Medora or Ideal. "On top of health, you have a second trend within food, which is the move to six meal occasions versus the traditional three. People are on-the-go and people like to have something every couple of hours and not just focused in around three big meal occasions a day. Snacking is on the rise," he says.

According to Permira, the better-for-you snacks market in the US accounts for 20% of the overall salty snacks market, excluding the convenience channel.

The US salty snacks sector is worth around US$26bn and, Permira says, has had a compound annual growth rate of 5% since 2010. Better-for-you salty snacks have had a CAGR of 11% and is expected see growth accelerate, the company said.

Some of the largest salty snacks companies have broadened their portfolios by adding more health-focused products and not every product has been a success, in part due to consumer concerns over taste. That has led some to question how far the market for healthier snacks can grow.

"I think there's always going to be a good component of the market that's indulgent. I don't think you're going to see a situation where better-for-you is half the salty snacks market because people make a conscious decision to indulge," Coyle says. "But, if you just look at the growth rates of the overall market for salty snacks, better-for-you is growing more than 10% and that's probably going to increase. The market today for better-for-you is roughly 20% and there's a good leg of growth to come. I don't know if that maxes out at 30% or 35%. I don't think it'd get to 50% but there's a long way to go."

Announcing the deal for Medora and Ideal two weeks ago, Permira described Medora's PopCorners brand as one of the "one of the fastest-growing brands" among better-for-you snacks in the US. Coyle says the Medora's origins in New York state means "their highest density is in the north east" but it is enjoying expansion further afield, in part on the back of its local listings with Costco. "They've done really well in Costco, which is their largest customer, starting with Costco in the north east but they're also now with Costco in Canada and Costco on the West Coast."

While moves into other parts of the US are a priority, Coyle indicates Permira is already looking at building Medora's presence internationally. "We think there's a big opportunity in Europe and we're going to help them go after that simultaneously," Coyle says. "They actually sell the products in over 50 countries. When we look at Europe, we see the UK as a big opportunity but also some of the bigger countries within Europe – Spain, Italy, France, Germany – are all on our list."

There are obvious challenges in gaining footholds in international markets, no matter how quickly a brand is growing domestically but Coyle believes Medora and PopCorners has a chance.

"There's no market more competitive than the US and the commonality is high across the world in terms of consumers. We don't take it lightly and, just walking through the aisles several weeks ago when I was in London, there's lots of good products but we think the opportunity is there for Medora."

Working on Medora's sales and marketing is another area on which Permira, alongside the company's management team, which will include the founder of Medora and Ideal, Zeke Alenick, will look to focus, Coyle says. "Historically it's been a company built around product and a manufacturing focus with virtually no sales and marketing. The big opportunity is to tell the world about PopCorners, increase its points of distribution and get our messaging out."

Alongside Middletown-based Medora, Permira acquired Ideal, a business located 40 miles north west in Liberty in New York state. It is, Permira says, a contract manufacturer of "diversified popped snacks". Ideal does not enjoy the same rate of sales growth as Medora but, Coyle believes the business "has a number of interesting things going for it".

"[Ideal] is the roots of the company and still is a nice laboratory for new products," he says. "They have a really nice roster of customers, important customers in the consumer space. A lot of big consumer companies look to small contract manufacturers for innovation and we think they're well positioned to continue to do that. And a lot of these companies are looking at their operations to figure out what's core and non-core and oftentimes are making the move to outsource manufacturing."

Coyle says Ideal's "main business" is to supply products to branded manufacturers. "It's always going to be relatively focused. I do think there are some of our retailing customers who are prospects for becoming customers of Ideal and that's something that will develop over time."

The acquisitions of Medora and Ideal and establishment of BFY Holdings has made Permira a notable player in healthy salty snacks in the US. Asked if salty snacks is just one of the categories in which Permira is scouting around for better-for-you assets, Coyle replies: "Absolutely. At the moment, the companies that seem to be in a better position to offer consumers a healthier product tend to be smaller companies. The bigger, classic, CPG companies have struggled to innovate to meet their consumer demand, so we think there's lot of interesting, relatively smaller, newer companies. We think fundamentally if there product is a good one and a better-for-you one, they're in a terrific position."

However, Permira has not decided whether BFY Holdings will be the start of a larger business in healthier snacks or even healthier food more broadly. "The answer is maybe. We have so much to go for at Medora and Ideal that that's the first priority. But undoubtedly as we build scale and the infrastructure, we will certainly evaluate whether or not this could be a bigger snack platform, sure," Coyle says.

And there does not appear to be another acquisition on the horizon. Asked if one should expect another deal in the next 12 to 18 months, Coyle said that "is a long time" but added: "We have nothing on the boil at the moment."

Nonetheless, surveying the M&A landscape in food, Coyle says it is a "fascinating time" in the sector. "There's lots of different dynamics at work. We're thrilled to be part of that," he says.

But what does he make of the high valuations attributed to assets in the industry? What impact could that have on Permira? "Oftentimes, what we're focused on and targeting is different from the big companies. We take companies that, oftentimes, like Medora and Ideal aren't quite ready yet to be bought by strategics because there's a lot of work to be done, a lot of growth to be pursued and they may not be of sufficient scale yet to attract the attention of some of the bigger food companies," he says.

It is, in some ways, a good time to be a seller of a growing business, with confidence in boardrooms returning and the cost of finance still relatively low. For a seller, there can come a choice of whether to join forces with a trade buyer or opt for private-equity investment. Deals in the food industry and the wider consumer goods sector continues to involve both types of acquirer. Coyle suggest a private-equity investor can offer a business support it may not find with a strategic owner.

"We are thrilled to invest in growth," he insists."We are happy to add to the resources of the company and are not particularly worried about earnings in a couple of years. We just want to make good investments and support growth for the future. Two, we really get on well with entrepreneurs because we're happy to make decisions quicker, sooner, faster still in an intelligent way but just at a speed that big companies can't. And then three we're all in it together – we’re aligned and don't own anything else in the space and our only priority is growing Medora and Ideal. Oftentimes when you get bought by a bigger food company you pretty quickly realise some of your competition is within the company itself.