Glenboden M & A Originations

Bridgepoint's M&A rationale for Burton's after Polish biscuit buy

Priority Rating priority rating 5
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Origination Status divestment process underway, October 2013
Asset Burton's Biscuit Company (UK), leading domestic branded and private label biscuit producer
Buyer candidates are mainly private equity players
Seller private equity managers Apollo Management and CIBC
Buyer Rationale consolidation strategy for European biscuits, further restructuring potential
Seller Rationale acceptable valuation, successful turnaround
NBs Burton's main brands are Cadbury, Wagon Wheels, Lyons, Maryland, Jammie Dodgers
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Apparently the sale of Burton's has attracted expressions of interest from around 12 bidders, nearly all of them private equity players. In secondary buy-outs it's very hard to predict the winner; but we think Bridgestone should figure, on the basis of its most-recent acquisition activity.

Candidates with food & bevs in portfolio ...According to Sky News, potential bidders include Apex Partners, CapVest, Charterhouse and Pamplona Capital. Of that group, only CapVest has a weighting in food manufacturing investments.

That group's portfolio includes Valeo Foods (grocery), Vaasan & Vaasan (bakery) and FoodVest (frozen; successful exit in 2008). The others' consumer investments are focused on specialty retail, gastronomy and non-food.

On the basis of strategic rationale, as manifest in recent M&A activity, we believe that Bridgepoint should be a front-runner to acquire Burton's. If they're not yet on the long-list, then it's not too late if it's only expressions of interest or NBOs.

... recent biscuit entrant in Europe ...Bridgepoint has just announced the acquisition of Dr Gerard from Groupe Poult of France. That deal has surprised many insiders in that country, as Dr Gerard is quite small by Bridgepoint's standards (turnover above €50 mln).

That company is focused on private label and reputedly delivers low margins. A more obvious buyer for Dr Gerard was Resource Partners, who's already consolidating the biscuits market in Poland (purchase of Delic-Pol and Cuprod).

It seems unlikely that Bridgepoint bought Dr Gerard as a stand-alone investment. Rather we would assume it's the first step in the construction of a larger entity in Europe; at least all logic would point in that direction.

... precedents for Poland - UK bakery playThere's a precedent for UK investment in biscuit manufacture in Poland, for export back to the UK. McCambridge's cake division, now owned by NGBI PE, includes a Polish factory focused on the UK market - Cukiernia Mistrza Jana.

Other UK food investors in Poland in recent years, with a significant export focus, include Emig (FJND) and AB Foods (grocery). Clearly the Poland - UK axis works in food manufacture, by virtue of lower costs or EU subsidies.

Given that Burton's is a stable business delivering reasonable margins (see profile), we believe that the reported price expectation is achievable for a 60% branded biscuits business (see valuation); especially if the buyer has the prospect of lowering costs through CE manufacture.

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THIS LEAD'S VALUATION
Size (€ mln) 410
Sector biscuits
Asset Quality UK no.2 branded and PL
Seller private equity
Buyer private equity
P/S 1,0
P/Ebitda 10,0
Type reported price expectation
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