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Bite Size Recent activity in the food and beverage sector Autumn 2014 Welcome to the latest edition of ‘Bite Size’, our Identifying and acting on underperforming assets quarterly overview of Strategic reviews can give management teams also need to be considered, taking into account the activity in the food and insight into how various divisions or subsidiaries can relevant strategic and external factors impacting on beverage sector. This contribute – both strategically and fi nancially - to the underperforming area of the business. These edition provides analysis the goals of the business. Where certain business alternatives could include: of M&A activity in the third operations no longer fi t with the overall strategy • Turnaround • Integration quarter (Q3) of 2014. and direction, rationalising a group’s portfolio by carving out and disposing of valuable non-core assets • Closure In this issue we also (as highlighted in the Spring 2014 edition of Bite • Controlled wind down provide insight into using Size) is a good way of realising value and has been Each of these options is not without its complications, strategic reviews to identify well executed by a number of large players in the and will require clear direction and leadership in order and act on underperforming industry, including Unilever, Nestlé, GlaxoSmithKline to minimise the disruption to the remainder of the assets. In addition we present and Premier. business and ensure that there is no damage to the a case study of Joe & Seph’s, However, what options are available when brand during what can be a diffi cult time, particularly the award-winning producer underperforming (or, arguably, non-valuable) if closure or wind down has been identifi ed as the of gourmet popcorn, which operations have been identifi ed? These operations most appropriate route. may or may not form an essential part of the We have extensive experience of working is pursuing a successful strategic direction of the business but will most alongside management in challenging growth strategy. certainly absorb valuable resources such as cash and circumstances, where the most appropriate way We hope that you find management time. It is important for businesses to of delivering value may not be readily apparent. In this newsletter useful. If you identify an appropriate way to realise value in order to addition to the fi nancial benefi ts, such as stemming have any further questions release these key resources and drive growth. losses, a focused strategy and a clear plan to deal or queries, or would like to We recently assisted a European bakery client with assets which are underperforming has also know how Grant Thornton in planning and implementing a systems and meant that our clients have found themselves more can help you and your process overhaul to provide visibility on product and able to attract and retain competitive fi nancing and business please do not customer profi tability. This work enabled our client with more time available to focus on growing other to implement a factory rationalisation programme, key areas of their business. hesitate to contact me. dispose of non-core business operations and For more detailed information or examples of how re-engineer key products and manufacturing. The Trefor Griffi th our clients have benefi ted from our approach, please resulting turnaround enabled the management team contact: Head of Food and Beverage, UK to drive strategic, operational and fi nancial decision T +44 (0)20 7728 2537 Adrian Richards Catherine Barnett making from a stable and reliable base. Partner, Restructuring Manager, Restructuring E trefor.a.griffi [email protected] Indeed, realising best value from an and Debt Advisory and Debt Advisory underperforming asset may not always result in a T +44 (0)20 7728 2001 T +44 (0)20 7728 3278 sale process, and a number of alternatives may E [email protected] E [email protected] Joe & Seph’s, award winning producer of gourmet popcorn, is pursuing a successful growth strategy, please refer to the back page for the story of their success to date. M&A activity – Q3 2014 Quarterly volume and value both decline Announced M&A activity in food and beverage - quarterly Following the second quarter’s surge, total disclosed deal value decreased by 30% in Q3 60 Number of deals Value of deals (£ million) 13000 2014 compared with the previous three- 12000 month period and by 25% compared with the 50 11000 [1] third quarter last year . 10000 Deal volumes also declined, dropping 9000 s 40 by 26% compared with Q2 2014 and by 8000 10% relative to the same period a year ago. (£ million) 7000 However, year-to-date total volume of 30 deals 6000 106 deals is slightly ahead of the 104 deals Number of deal 5000 recorded in the first three quarters of 2013. 20 4000 lue of Wholesale and distribution was the most Va 3000 active sub-sector, accounting for 22% of deal 10 volume, up from 17% in Q2 and 16% in Q1. 2000 On a positive note, the number of deals 1000 involving distressed companies continued 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 [2] the steady decline evident since Q4 2013 . 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 However, fewer of these companies were NB: the spike in 2010 deal values is attributable to the Q1 acquisition of Cadbury by Kraft for £11.9 billion acquired from administration - just 17% compared with the 44% of the previous quarter. This may reflect a reduction in Announced PE activity in food and beverage - quarterly the pressure being applied by the banks on under-performing businesses. 14 Number of deals Value of deals (£ million) 2,000 A number of recurrent themes were 1,800 represented in this quarter’s activity: the 12 prominence of private equity; buyers’ on- 1,600 going interest in targets in the healthy eating 10 and nutrition sub-sectors; and the two-way s 1,400 flow in overseas transactions – with interest 8 1,200 (£ million) in foreign assets by UK-based entities as well 1,000 deals as interest from overseas buyers in 6 UK businesses. Number of deal 800 lue of 4 600 Va Private equity activity well ahead of 2013 400 levels 2 200 PE activity in Q3 2014 was 14% lower by 0 0 volume than in the previous quarter, but on a Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 positive note, was up 20% on the same time 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 last year. Also, PE deal volume in the first three quarters of 2014 has already exceeded an undisclosed amount. Succinctly summing 2013’s full-year total by 32%. up the pressure facing food producers, Within this PE transaction activity, Nothing new under the sun? Pork Farms said the deal would create a the healthy eating theme was also evident. Innovation is an expensive process and, according to a new more streamlined, more responsive and In August, Bridges Ventures acquired study by the European Commission, food companies are better invested supply chain, reflecting the doing less of it. The report was commissioned following Wholebake, the Welsh cereal bar producer, complaints by food producers that they were discouraged increasingly competitive retail landscape as which makes the 9 Bar brand from Finance from investing in new product development because of the consumers’ shopping habits change. Wales. Buying the healthy, seed-based snack requirements being placed on them by retailers. bar maker was the private equity group’s first The study looked at changes in the European Union retail Looking overseas for healthy targets acquisition in the food sector. food market over the past decade and found that the number of new innovations reaching consumers had fallen The nutrition and healthy eating theme also Earlier this year, Valeo Foods, the owner by 6.5% since 2008. Also, whereas ten years ago the vast underpinned two of the quarter’s deals by of the Jacobs biscuit brand, which is backed majority of innovations were either completely new products UK-based companies to acquire overseas by Capvest, acquired Rowse Honey. In or extensions to existing ranges, in 2012 one third of assets. UK-based consumer goods group PZ September it further reinforced its branded innovations were related to product packaging. The study concluded that the decline in the rate of innovation was Cussons has been expanding into the food presence with the acquisition of health food because suppliers had reduced their expenditure on R&D, but sector. Cussons’ food portfolio includes specialist Kelkin and Robert Roberts, which also because the fast growing discount retailers are carrying Greek olive oil and spreads brand Minerva is best known for its coffee brand, from a narrower range of products. and last year the company bought Australian energy-to-technologies conglomerate DCC, Nonetheless, the report found that consumer choice in baby food business Rafferty’s Garden. for a total consideration of £46.9 million. the EU had increased, with the opening of new stores During the third quarter Cussons made a Other PE activity during the quarter leading competitors to offer greater choice and innovation. The pressure to innovate remains, but given the expense further Australian acquisition, buying leading includes, Pork Farms’ (which is backed of developing new products in-house, we expect many organic yoghurt brand Five:am.

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