Big role for private equity in food sector

PRIVATE EQUITY investment is expected to play a big role in the Irish and British food industry in the coming years, according to a Grant Thornton report.

Some 80 per cent of the 20 private equity houses questioned for the report into the food industry expressed an interest in investing in the food sector.

However, according to Ciara Jackson, head of food and beverage at Grant Thornton, investors are becoming more discerning about where to invest, favouring well-known consumer brands rather than private-label food companies.

“As private-label brands are generally sold into supermarket multiples, there is a concern about the difficulty in getting listings. While food producers who have contracts with supermarkets are in a good position, multiples tend to have a small, tight group of suppliers.”

Private-label businesses, whereby food producers manufacture own-branded products for retailers, form a significant part of the operations of most Irish food companies, with companies such as Kerry Group, Greencore and various meat processors producing own-label products for supermarkets.

According to Ms Jackson, strong brands are performing relatively well. “What we’re seeing is the emergence of two kinds of consumers: the more affluent shopper who is more careful about their purchase choice and happy to pay the premium for a product if quality and value is there, and the budget shopper who makes their shopping decisions on price.”

Merger and acquisition (M&A) activity is also expected to be a key driver of development in the Irish and British food and drink sector over the coming year, the report found. It notes that while tough economic conditions in 2008 and 2009 forced a steep decline in MA activity, this rebounded last year.

Among the major acquisitions last year were Kerry’s acquisition of Cargill’s flavour business, Greencore’s purchase of Uniq and Premier Foods’ sale of its four Irish brands, Chivers, Erin, Gateaux and McDonnells, to Boyne Valley.