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UK baker Finsbury Food Group has said it will look to make acquisitions following the disposal of its free-from business to Genius Foods.

Finsbury announced today (28 February) that UK gluten-free specialist Genius had acquired its free-from division in a GBP21m (US$31.8m) deal. The two companies already had a JV to produce gluten-free products, with an option for Genius to buy the unit at a later date.

Finsbury CEO John Duffy said the decision to sell the business was based on an approach by Genius to make the deal.

“The business we’ve sold is 14% of turnover so it has been strongly growing over the last few years but so have the others. We granted Genius the option a few years ago [to buy]. They’re a small business and have been getting themselves up to speed and growing. They weren’t able to execute it in the time frame we originally gave them, but they came back and said they were in a position to raise the funds and that they’d really like to go ahead and do the deal.”

Duffy said the international opportunities for a brand like Genius are “quite strong”. He added: “We’re a UK company so I think it’s a win-win. Joint ventures tend to have a life and, at the end of that, one needs to make a decision and become the buyer.”

Duffy said the company will now look to focus on its speciality breads and cake businesses in order to maintain profit growth and expand the businesses. This, he says, will include M&A.

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“We’ve been sorting out the balance sheet to allow us to invest harder and so we will do some M&A activity,” Duffy told just-food. “This deal means we will be a bit more streamlined about where we aim that acquisition opportunity. It will be speciality bread and cake now.”

Duffy said the company will look for acquisition opportunities in both divisions, but he added: “We’ve just not managed to find the right deal at the right price just yet, but I’m sure that will change.”

“In bread it is likely to be smaller bolt-on acquisition. In cake, there are a number of legacy cake businesses that aren’t doing that well, which are quite a big size, and consolidation is probably more likely rather than a small bolt-ons.”

While Finsbury has international ambitions, any acquisitions the company makes will be in the UK, Duffy said.

“We’ve got a joint venture in Europe with a French family, more of a distributor model, and we may well grow that going forward. We’ve started doing more exports, particularly in our licensed celebration cakes to other parts of the world. That started quite recently and is growing quite well so that might well grow.

“Our acquisitions though are likely to be quite UK-centric because bakery is quite a tough category. There’s a lot of pressure in terms of commodity inflation and consumer spend and I think bulking up in the UK makes more sense in terms of responding to those pressures.”

In the short term, however, Duffy said the company will concentrate on paying down debt.

But he added: “The balance sheet we will have, as of now, is capable of being extended again if we see the right acquisition. There’ll be no problem in raising a bit more debt and a bit of equity to do the right acquisition.”

As for the trading environment, particularly commodity cost pressures, Duffy said he expects much of the same going into 2013.

“It’s been the theme really for the last four or five years. We don’t really anticipate that the gradual upward trend in commodity prices is going to change. There are peaks each year in terms of individual commodities, whether that be egg or sugar, all of which we’ve seen big spikes in in recent years.

“We’ve dealt with it well over the last few years, growing top and bottom line. We’re never going to make massive margins, we just want to be competitive and be able to reward shareholders and more importantly invest in the business.”