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March 22, 2012

CAGE: Private equity at centre of renewed M&A activity – Spayne Lindsay

Private-equity firms will play a central role in an upturn in mergers and acquisition activity in the global food sector, M&A advisory firm Spayne Lindsay has predicted.

By Dean Best

Private-equity firms will play a central role in an upturn in mergers and acquisition activity in the global food sector, M&A advisors Spayne Lindsay has predicted.

Tom Lindsay, co-founder of the UK firm, said “a lot of roads lead to private equity” when considering which companies could be ready to buy a plethora of assets he suggested were up for grabs.

Speaking to the Consumer Analyst Group of Europe conference in London yesterday (21 March), the volume of transactions was “picking up again” after three years of “difficult” economic conditions.

Lindsay said pressure from retailers and volatility in commodity costs would be among the factors that would drive further consolidation in the food sector.

Lindsay said Europe could see a “lot of activity” in the coming months. Low growth companies loaded with debt and a clutch of assets up for sale in Europe meant the continent was set to see a number of deals.

Premier Foods plc, the UK’s largest food manufacturer, is looking to sell assets including Hartley’s jam and Haywards pickles. Lindsay speculated that Unilever could look to offload parts of its food operations. He suggested Kraft Foods’ European assets, including Philadelphia, that are set to be part of the global snacks firm to be called Mondelez International when the US food giant splits in two, could also become available.

Lindsay also listed a number of European food companies owned by private-equity firms – Findus Group, United Biscuits and R&R Ice Cream – that could be for “looking for a home”.

“Where are the buyers going to come from for all these loose assets in Europe?Private equity, family companies, flotation or potentially a new international player for regional brands. A lot of roads do lead to private equity,” Lindsay said.

“Why? Food companies do have relatively stable cash flows, even though they are relatively low growth at the top line level, they can be made to grow at the bottom line level through cost savings, consolidation synergies and improved focus. And there’s plenty of capital in the private-equity world.”

Lindsay argued that more M&A deals could be financed through debt. Earlier this month, Iceland Foods’ management teamed up with three investors to finance the takeover of UK frozen food retailer in part through debt. The Spayne Lindsay executive believed the time was right for similar deals.

“A number of transactions would be out there being marketed had confidence in the financing markets been there in the last quarter of 2011 but it wasn’t and a lot of people put their plans on hold. They are now dusting those plans off and the financing markets, particularly in North America, the high yield market, keeps being described to me as red hot by the bankers. Financing is there and I would see that, in the next six months, there’s going to be a lot of activity,” he said.

Meanwhile, family-owned companies, which generally have focused on organic growth, could look to become more active in the M&A markets. “Are the family companies going to change their approach to M&A?,” Lindsay asked. “On this, we think the answer is yes. Historically they’ve been much more focused on organic growth. We think that they have low levels of leverage and they are finding organic growth much harder to find.”

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