Investment firms wheel and deal in food industry

Related tags London stock exchange Private equity

The planned floatation of the UK's RHM on the London Stock Exchange
later this month is part of a cluster of current deals underway in
the food sector involving investment firms.

Other investment deals on the cards involve Wagamama, Weetabix, Burger King and Bénédicta.

On 19 July Doughty Hanson plans to exit RHM via an initial public offering on the London Stock Exchange. The buyout group bought RHM, a leading UK food producer, for £310m (€456m) in 2000. Doughty Hansonhas valued RHM at between £875m to £975m (€1,287m to €1,435m) based on its suggested share price.

Like other firms investing in the food business, Doughty Hanson​ says it purchased RHM because it saw an opportunity to made the company amuch more efficient business. It has shaken up management and restructured the company.

The IPO is the next step in management's strategy to transform RHM into the leading UK focused food company, stated Ian McMahon, RHM's chief executive officer.

"The significantly improved financial performance in the year ended 30 April 2005 demonstrates the success of RHM's strategy to transform itself from a collection ofsubstantially independently operated food companies into a more efficient, centrally co-ordinated and managed group,"​ he stated in announcing the floatation.

RHM employs about 16,000 staff in the UK and owns brands such as Hovis, Granary bread, Robertson's and Mr. Kipling. Twelve of RHM's brands, which account for 77 per cent of the company'sbranded turnover, were number one in their product categories, according to the company's prospectus.

RHM generated turnover of £1,527m for the year ended 30 April 2005, compared to £1,517m during the previous financial year. During the period RHM generated operating profitbefore exceptional items and goodwill amortisation of £155m, an increase of 28 per cent over the previous year. Operating profit margin increased to 10.1 per cent from eight per cent.

Sales of the company's branded products rose 2.3 per cent, partly offset by a decline in lower margin own label business. During the year, RHM increased investment in advertising and new productdevelopment. The increase in branded turnover reflected price increases in key brands and the effect of new product launches, the company stated.

RHM also achieved £20m of procurement savings, made some additional restructuring and lowered its pension costs during the year.

"An IPO will position RHM for the next stage of its development as one of the UK's leading food producers, focused on profitable, branded top-line growth,"​ Doughty Hanson stated.

Meanwhile other investment firms are also wheeling and dealing in the food market. Last month private equity group Lion Capital bought a majority stake in Wagamama, a Japanese noodle bar chain, for£102.5m. Graphite Capital, which purchased Wagamama in 1996, will retain a 12.3 per cent share in the business.

Lion Capital cited Wagamama's growth potential and the current trend for healthy eating were cited as deciding factors in the acquisition. The company also plans to focus on gaining a foothold inthe US market. The company currently has outlets in the UK, Ireland, Australia and Dubai.

Lion Capital is the former European unit of the American private equity firm Hicks, Muse, Tate & Furst, another keen investor in the food industry. Lion Capital already owns Weetabix and waspart of a consortium that dropped out of a bidding war for Allied Domecq. Lion bought Weetabix for £640m in November 2003.

Weetabix itself is in advanced talks to sell two of its American businesses for a total of about £60m, according to a report by the UK's Times newspaper. Quoting unnamed sources the Times saidWeetabix is working with NM Rothschild to sell its Barbara's Bakery and its private label cereal maker businesses to focus on its main Weetabix, Alpen and Ready Brek brands.

In the US a group of three private equity investors consisting of Bain Capital, Texas Pacific Group and Goldman Sachs Capital Partners are reportedly positioning Burger King to go public in 2006.The company's chief executive told Reuters News that an initial public offering (IPO) is the likely exit strategy.

The company, the world's second largest burger chain, was previously owned by Diageo before the investment firms bought it for $1.5bn. Burger King was restructured over the past two years,according to Euromonitor International.

Earlier this week AXA Private Equity said it bought French food manufacturer Bénédicta from Barclays Private Equity and ABN Amro. AXA plans to develop Bénédicta's branded product ranges and to expand exports. AXA also said it would support any future acquisitions the company might make in the future as part of the growth strategy.

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