Glenboden M & A Originations

Tyrrells deal - private equity is softer than corporate money

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Origination Status buyer announcement, August 2013
Asset Tyrrells Potato Crisps (UK), differentiated savoury snacks brand
Buyer Investcorp International Ltd (UK), alternative investments manager
Seller Langholm Capital (UK), private equity firm
Buyer Rationale getting money out of the door
Seller Rationale best market valuation
NBs Investcorp is a Bahrain -based alternative investments products manager with a diversified portfolio
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There's someone very clever that's put this deal together. Investcorp is a Bahrain -based investment firm; it spans private equity, real estate and hedge funds. Tyrrells is a differentiated 'hand cooked English crisps' brand, that ordinarily would be bought by the likes of Kellogg or Intersnack. So what happened ?

Private equity the odd winner ...82% of Tyrrells' sales are in the UK, and its challenge now is internationalisation. Who could possibly do a better job of that, than a strategic investor, with the distribution and marketing means to 'valorise' the brand overseas ?

Instead, the brand has been sold to a financial investor that's neither specialised in private equity nor, within that part of its business, does it have any other food & bevs assets - all 17 of its portfolio companies, in north America and Europe, are in other sectors.

Tyrrells' owner, Langholm Capital, presumably ran a tender through which Investcorp turned out to be the highest bidder. That's the way it goes; but why didn't a strategic investor, with all his synergies and knowhow, outbid an 'outlier' alternative investments firm ?

... needs to get money out of the door ...We at Glenboden know what it's like to lose a competitive tender to a private equity firm. in 2011 our client, Raisio, lost the bid to buy a leading ricecakes company in Poland, Good Food, to a private equity player, Resource Partners.

Of course, we should point to the need of private equity funds to 'get money out of the door' as the reason for their winning a tender like Tyrrells. If they don't buy the asset, then management fees don't kick in. So, tick up the price to win the asset.

Hence we have a classic case of overpayment (see valuation). Investcorp has paid several times sales value for a company that's fully maxed-out in terms of its EBITDA margin. They've made a bet on growth which they're in no state to deliver.

They'll worry about the consequences later, when it comes to renegotiating terms of trade with your main customers; when it comes to finding pathways to growth; when it comes to finding synergies with other portfolio companies.

... a question of timing for strategicsComing back to strategic investor alternatives, why didn't the likes of Kellogg (buyer of Pringles) or Intersnack (buyer of KP Snacks) step up to the plate, to buy Tyrrells - a differentiated fast-growing business that they can valorise ?

The basic reason is that of timing. We should remember that securing a strategic buyer is like hailng a taxi - it's hard to get the timing right. One already has a customer on board; one is on his way to a new customer; another has signed off for the night; another is plain angry at something.

Maybe Kellogg still hasn't digested Pringles and asks whether Tyrrells adds value; Intersnack regrets that it bought KP instead of waiting for something fresher; others also had another ticket that day.

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THIS LEAD'S VALUATION
Size (€ mln) 115
Sector savoury snacks
Asset Quality UK independent branded
Seller private equity
Buyer private equity
P/S 3,6
P/Ebitda 13,5
Type enterprise value
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