Chr Hansen eyes acquisitions as new owner brings cash

- Last updated on GMT

Related tags: Private equity, Private equity fund, Europe

Chr Hansen is already on the look out for new acquisitions as the
firm enjoys a fresh financial thrust from its new private equity
owners, PAI partners, reports Lindsey Partos.

On sale since November 2004, last week PAI sealed a €1.1 billion deal for the number one Danish culture maker.

Speaking to FoodNavigator.com, the new CEO Lars V. Frederiksen says PAI provides a strong financial partner to allow "us to be more aggressive".

"Private equity adds value by investing, to grow margins and cash flow, and to build further,"​ continues Frederiksen, the 25 year-long company member, who last week took the reins from former CEO Erik Soerensen after the latter plumped for early retirement.

According to the new CEO, capital investments are expected in factories, R&D, and marketing efforts. Basically an acceleration of our existing strategies, adds Frederiksen.

PAI is not the first, and certainly not the last, private equity firm to invest in the stable European food and drink industry.

According to a report from 3i, private equity and venture capital invested in Europe's food and drink companies nearly doubled from €2.7 billion in 2001 to €4.5 billion in 2002.

The largest industrial sector in the EU, with a turnover of €799 billion in 2003 on 1.9 per cent growth on the previous year, the food and drink industry is attracting new investors through private equity.

Stocks in the industry have outperformed other industries in the past two years to 2003, but the industry is safe rather than exciting, claims the report.

Despite this, while overall investment volumes fell, the European food and drink industry has consistently pulled in more private equity funding than other industries, technology aside.

Four industry drivers explain the mutual attraction between the food and drink sector and private equity, says 3i.

Firstly, the pressure on innovation; to not only bring gains in an increasingly competitive environment, but also to meet tougher food safety and traceability issues.

Secondly, consolidation. Despite ongoing consolidation, the industry is still fragmented, particularly outside the UK, and concentration can provide serious economies of scale and the opportunity, from private equity firms, to develop new markets among numerous smaller companies.

Consolidation in large players has also brought the disposal of non-strategic assets, many of which have brand equity waiting to be unlocked.

The untapped potential of continental Europe is a further industry driver. According to 3i, the UK has traditionally taken the bulk of private equity funding in Europe, but a shift to other markets is underway.

"Greater scope for consolidation in fragmented markets such as Italy and Spain, and more room for growth in category such as ready meals, has proven itself in the UK but has yet to take such a hold elsewhere in Europe,"​ say the report authors.

Finally, the evolving nature of the food economy. Growing cross- fertilisation between food discipline and areas such as biotechnology, and information technology can offer private equity new opportunities for gains in the industry.

"Private equity firms can give companies insight into emerging technologies and innovation that can help them realise their strategic plans.

And they are a critical source of deal flow, enabling firms to spin off non-core assets and providing companies with valuable acquisition opportunities,"​ claims the report.

Navigating the new food economy takes a knowledgable, networked partner with a clear understanding of the industry's dynamics, adds Keith Elli, at 3i.

Reflecting the fundamentals of the report, the European food ingredients sector has already been marked by private equity acquisitions.

Prior to PAI, last month a €197.5 million deal saw food and pharma group DSM shed low growth bakery ingredients operations to private equity firm Gilde.

Private equity fund EQT bought two dominant German-based flavour and fragrances manufacturers, Haarmann & Reimer and Dragoco in 2002, and acquiring to fulfill top three player ambitions.

In 2003, Henkel, the German group providing branded consumer products and industrial systems, agreed to sell its chemical division Cognis to a consortium of financial investors comprised of Schroder Ventures, a European private equity specialist, and Goldman Sachs Capital Partners, the private equity branch of Goldman Sachs.

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