With food firms of all sizes feeling the pinch from commodity prices, it would be easy to see the merger between bakery groups IAWS and Hiestand as a way of better absorbing rising costs. However, in this month’s just-food interview, IAWS chief operating officer Hugo Kane tells Dean Best that the deal is more about growing two successful businesses.
It’s clear that IAWS and Hiestand, the two bakery groups who agreed to merge last week, knew which side their bread was buttered.
In a consolidating food industry, and with cost pressures affecting manufacturers across the sector, such deals are becoming commonplace, there is the suspicion – often refuted – that cutting costs is key a motivation behind these kind of transactions.
However, last week, when Ireland’s IAWS – the group behind bakery businesses including Cuisine de France and Otis Spunkmeyer – announced an effective takeover of gourmet Swiss baker Hiestand, both sides were, perhaps rightly, keen to espouse the other benefits of coming together.
The deal is set to create the world’s largest producer of frozen baked goods, operating from 23 production sites in 15 countries. The combined company, to be called Arytza, will generate annual sales of around EUR2.3bn (US$3.56bn) and serve markets across the globe. Both sides predict they will enjoy greater production and distribution strength, as well as greater scope to invest in innovation.
It is likely both sides saw the move as something of a no-brainer and although Hugo Kane, chief operating officer at IAWS, does not say as much, he is very bullish about the prospects of the enlarged company.
“[Cutting costs] is not the driving force behind doing this. There are far more beneficial synergies than cost-saving synergies,” Kane tells just-food. “This is not about procurement or synergies. Two words we use in our business are: innovate and execute. Innovation is the life-blood of our business and execution on the ground in front of our customer.”
Kane adds: “These are two complementary businesses with very similar corporate cultures. Both sides have driven people who take ownership of their business and management that allows people their heads, that doesn’t stand over people telling them what to do.”
The two sides know each other well. In 2003, IAWS bought 22% of Hiestand in 2003 and later raised its stake to 32%. Discussions over a deeper relationship between the two sides began soon after a chunk of Hiestand exchanged hands. In February, US investment fund Focus Capital sold its 32% stake in Hiestand and UK-based private equity group Lion Capital came in and acquired the shares. “That was a catalyst; that was a big event,” Kane says. “We looked at it and saw the shareholding had changed, the Hiestand management were a little bit nervous, so it really wasn’t very long in the offing.”
For Kane, the existing relationship between IAWS and Hiestand will pave the way for a fruitful future. “There’s a low integration risk here because we know the people very, very well,” he says. “It’s a perfect geographical fit in terms of IAWS as we have no operations in central Europe.”
Two years ago, IAWS struck a significant deal in North America with the acquisition of US muffin and cookie maker Otis Spunkmayer. The acquisition boosted its business in the US and some saw the move as a key signpost on the group’s transformation from an agricultural co-operative to a serious player in baked consumer goods.
The move for Hiestand, however, could be seen as an even more significant deal strategically. In geographic terms, there is little overlap between the two companies, while the Swiss firm’s presence in emerging markets should whet the appetite of IAWS.
“There are some fantastic opportunities within the market,” Kane says. “Both companies have had incredible compound annual growth rates on the top and bottom lines over the last five years. IAWS’s food division would have grown its business 20-22% every year over the last five years. Hiestand has done exactly the same thing – mirror image – [with the] same system and same product but in different geographic countries.”
The question, of course, is how to maintain these growth rates, achieved as independent entities, as part of a larger business. Some analysts have expressed concern that Hiestand will no longer operate independently and growth from the business could slow.
Kane, who joined IAWS when the group snapped up the business he founded, Cuisine de France, in 1997, insists the Irish firm has a track-record of allowing the companies it acquires to run more or less as they were.
“I’m an Irishman, I believe firmly in local management,” he says. “If you’re in the UK, you must have local management; if you’re in France, you must have local management. We’ve managed to successfully do that, with [French baker] Groupe Hubert, with Delice de France, with Cuisine de France, my own business, that I started all those years ago, and with Otis Spunkmeyer in San Francisco. We see a great opportunity to grow Hiestand and keep the corporate culture that it has. We believe in keeping the DNA of a business.”
And with Hiestand having proved adept in growing bakery businesses in markets from Austria to Australia, Kane and IAWS could do worse than allow its new Swiss signing to forge its own path.