Glenboden M & A Originations

CapVest and Permira are rival consolidators in European frozen food

Priority Rating priority rating 4
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Origination Status merger of portfolio companies announcement made, January 2008
Asset Young’s and Findus frozen food brands and business (UK, France, Nordic Region)
Buyer CapVest Equity Partners (UK), private equity firm (controlling entity)
Seller Foodvest Group (name of merged business)
Buyer Rationale new management, rationalization, further consolidation plans in Europe
Seller Rationale to facilitate future exit
NBs CapVest competes with Permira for dominance in European frozen food
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Frozen foods deserve special attention again; we foresee more significant consolidation activity in Europe this year. After some major buy-outs and add-on acquisitions, earlier this decade, two major private equity –backed groups have emerged; Foodvest, controlled by CapVest, and Iglo Bird’s Eye, owned by Permira. Each of these groups has turnover of close to € 2 bln, and both have an aggressive consolidation strategy. An important battleground for these two groups, in the near future, will be the acquisition of Hortex from Argan Capital.

The two groups are in a ‘race for Europe’, because the only way they can maximize their exit value is to have as broad and deep a geographic footprint as possible. That’s because, with sale to a strategic investor unlikely in the frozen business, the only viable exit route is sale to the public equity market, through an IPO. The more pan –European these groups become, the higher the quality perception will be of their earnings, so the higher their IPO price and institutional investor interest.

Hortex is market leader in frozen foods in both Poland and moreover Russia, and enjoys very high brand awareness levels in both countries. It’s rumoured to now be for sale, having been in the hands of Argan Capital for a total of 10 years (including previous incarnation). It’s a very substantial, € 250 mln turnover frozen business. Given these features, and the consolidation reality described earlier, we believe that Foodvest and Permira are fighting to acquire it from Argan.

But who is the more likely winner ? Certainly Foodvest has the stronger track record in acquisitions, and has never over-paid to the extent that Permira did when it bought Iglo Bird’s Eye from Unilever in 2006. Glenboden’s money is therefore on Foodvest to emerge as Hortex’s buyer.

The history behind Foodvest is a case study in consolidation. CapVest first of all acquired Young’s in the UK, from Legal & General’s private equity arm, in 2002. Young’s had earlier merged with Bluecrest, in 1999, to become the UK’s market leader in frozen and chilled seafood. It went on to acquire Albert Fisher in 2002 and MacCrae in 2004. To expand into Europe, CapVest then acquired Findus from EQT private equity, in 2006, with its strong market position in France and the Nordic region. Now it is merging Young’s with Findus to form Foodvest, a € 1,6 bln turnover European frozen and chilled foods group.

Permira, on the other hand, made just one big acquisition; that of Iglo Bird’s Eye, from Unilever, in 2006. Since then they haven’t made another significant consolidation play, although they should do, to extend their geography; Igloo Bird’s Eye is a €1,7 bln turnover business, but most of that is generated by the UK and Germany.

More sobering, for Permira’s prospects, are valuation comparisons. CapVest bought Young’s in 2002, inevitably for a relatively low price given the timing. Findus was bought in the headier year of 2006, but according to analysts they only paid about x1,2 Sales for it. Permira, on the other hand, was arguably ‘the greatest fool’ at the auction organized by Unilever, paying x1,5 Sales for its prize in 2006. Given these comparisons, it will be harder for Permira to pay ‘top dollar’ a second time, for Hortex.

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