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Bluebox Food Report

December 1, 2017

M&A Update

November 2017

 

What happened?

Despite the potential downside risks the food industry is exposed to (such as commodity price volatility), M&A in the sector has remained strong, with disclosed deal values surpassing £6.5 billion in the past 12 months. Reckitt Benckiser’s sale of their UK food business, which includes French’s Mustard and Frank’s RedHot to McCormick & Company for £3.2bn, Post Holding’s acquisition of Weetabix for £1.4bn and Pilgrim’s Pride acquisition of Moy Park for £1bn have all contributed significantly to that figure.

The Government is trying to mitigate the increased costs facing food businesses due to the weakening of the sterling following the EU referendum. Earlier this year, they released ‘Food and drink exporting – Five steps to success’ in an effort to encourage UK firms to export their products and turn the currency swing in their favour. Whilst UK food exports totalled £20bn in 2016, only 20% of UK manufacturers currently export their goods. The FDA has set the target of growing the export of UK branded goods by one third by 2020, which represents a significant opportunity for UK businesses, and is likely to attract further M&A interest.

 

Who’s buying?

The majority of deals (c.88%) were made up of trade players looking to further develop and expand already existing product infrastructure or to strengthen their position in the UK. Private equity, both UK-based and abroad, made up the balance. The UK food sector has maintained its attractiveness to foreign buyers, with 54% (52% in 2016) of acquirers based abroad which has also been due to the weak sterling. This further breaks down as would be expected with 35% of acquirers from other European firms, 15% from North American and the outstanding 4% from those based in Asia.

Sustainability

Larger operators are increasingly realising the value of making movements into the ‘sustainable food’ space. This has been evidenced by a wave of recent acquisitions including Unilever acquiring Pukka Herbs, an organic herbal tea company, Nestle acquiring Sweet Earth, a sustainable meat producer, and Danone’s acquisition of White Wave Foods, a plant-based foods producer. Making acquisitions such as these not only allows the buyer to capture the higher growth in the nascent industry but also helps to reframe them as environmentally friendly and health-focused corporations that are having a positive and social impact on the world.

Buyers may be unlikely to acquire a sustainable business simply because it is sustainable, but its weight as an investment criteria is rising. Investors are ever more appreciative of the idea that a company with a sustainable business model is significantly more likely to be around for many more years to come and should hold a stronger competitive position than those not adopting sustainable practices.

 

Brexit/EU

It is hard to mention the UK food industry without at least a brief reference to the potential impact of leaving the European Union. The immediate issue is the very high relative proportion of EU workers in the sector in the UK; there has already been a 20% shortfall in available staff this summer and survey from the Food and Drink Federation found that 36% of businesses felt that they would be unable to adapt if they did not have access to the EU labour market following Brexit.

Whilst the potential labour shortage is a significant issue, we can equally reframe the situation differently from an M&A perspective. The referendum has further pushed the zeitgeist towards ‘buying British’ and supporting local industry, coupled with the change in exchange rates, British consumers will be increasingly ignoring foreign products for British ones. Whatever form the deal with the EU ultimately takes, the British market will remain incredibly large and international companies will want to be active within it. If their current brands are being turned down in favour of British competitors, acquiring these companies may become their preferred route of entry into the market.

 

Certifications

Consumers are becoming increasingly more aware of the food they eat. Multiple forces are working here; in recent years trust has been eroded due to recalls such as the horse meat scandal and consumers have become increasingly health conscious. Both factors have increased the importance of food manufacturers receiving certifications to ensure that consumers can trust the products they are buying. Following the horse meat scandal, the BRC Global Standards certification reviewed their accreditation process and pushed to increase the sharing of criminal intelligence across Europe and more globally to places like the USA and India. Whilst the added health benefits of organic food are questionable according to many studies, companies that can receive an organic certification from groups such as the Soil Association, are very likely to be able to charge a higher price for their products.

Both forces highlight the increased importance of operators in the industry being able to demonstrate their credentials and the likely increase in importance acquirers will be attributing to them.

 

 

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    Testimonials

    “We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.

    We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”

    Richard Millward, Former Client

    “We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”

    Helen Dickinson, Former Client

    It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.

    Hugh Morris, Former Client

    We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.

    Laurence Seward, Former Client

    Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.

    Mike Minett, Former Client

    We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.

    David Stokes, Former Client

    When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.

    Jeff Weinstein, Former Client

    When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.

    Bill Ballard, Former Client

    Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.

    Alan Montgomery, Former Client

    The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.

    Nigel Parsons, Former Client

    I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.

    James Caan, Investor

    We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.

    Marten Nielson, Former Client

    We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.

    Paul Duckworth, Former Client

    I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.

    Peter Bennett, Former Client

    Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.

    James Averdieck, Gü, Former Client

    The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.

    Jon Parslow, Former Client

    “We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”

    Simon English, Former Client

    Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.

    Henry Braham, Former Client

    Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.

    Matt Evans, Former Client

    The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.

    Victor Lewis, Former client

    Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.

    Simon Hulme, Former Client

    Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.

    Michael Clapper, Former Client

    I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.

    Mark Rodol, Former Client

    I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.

    Steven Davies, Former Client

    With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter

    Clive Hillier, Former Client

    The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.

    Harpal Singh, Former Client

    I chose Bluebox because they were the only CFA we considered who were a real ‘solution sales’ organisation rather than a team of accountants and/or ex-bankers! Selling a business is a solution sell and therefore a sell-side CFA requires this skill at its core.

    Jeremy Harford, Former Client

    Bluebox were a full solution in every respect. As an example, I never spoke with any of the potential or actual buyers directly. This separation allowed Bluebox to do what they do best which is to sell companies for the best price and on the most favourable terms.

    Jeremy Harford, Former Client