Glenboden M & A Originations

Blackstone’s acquisition of Pinnacle Foods gives a positive example of secondary buy-outs

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Origination Status group acquisition definitive agreement signed February 2007;
Asset Pinnacle Foods Group Inc, leading producer of packaged branded foods in US and Canada;
Buyer Blackstone Group (USA), global private equity firm;
Seller JP Morgan Partners, JW Childs Associates, CDM Group (US private equity firms);
Buyer Rationale further restructuring and bolt-on acquisition opportunities;
Seller Rationale exit after corporate turnaround;
NBs Pinnacle shareholder group includes its Chairman and bondholders of predecessor company.
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A textbook secondary private equity buy-out. First, a group of investors, headed by a food industry turnaround specialist, acquire an ailing company. In the space of five years, a new management and ownership group comes together. They slash the company’s manufacturing and distribution capacity by one-third, add 75 new products and make some prudent bolt-on acquisitions. This enables them to now sell the business at 2,5 times their original money, to another private equity player with the clear potential to achieve something similar. This suggests that secondary buy-outs, much derided, are a legitimate area of M&A activity.

The buyer, although another private equity firm with no synergy potential, is also in a position to make lots of money, through continuing on the same restructuring and acquisition trajectory for Pinnacle.

To reflect that ‘win – win’ arrangement, the valuation in this deal is very reasonable, one could say classical : P/S of 1,03 and P /EBITDA of 10,5. This is at a discount to a good comparable transaction (Premier Foods and RHM merger), and should facilitate the achievement of the buyer’s IRR goals.

Pinnacle has leading positions in north America through a broad range of iconic grocery product brands (bakery, pickles and relishes, syrups, baking mixes).

No doubt Blackstone was emboldened by the experience they’ve gained with other food businesses in their portfolio - United Biscuits in the UK and Orangina beverages in Europe, both of which they acquired as recently as 2006.

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THIS LEAD'S VALUATION
Size (€ mln) 1.660
Sector culinary products
Asset Quality US branded leader
Seller private equity
Buyer private equity
P/S 1,0
P/Ebitda 10,5
Type enterprise value
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