Acquisitive US private equity group Hicks, Muse, Tate & Furst is keen to buy up more British food businesses and expects to be running its major Premier foods unit for the next few years before seeking an exit, a partner of the firm told Reuters.
Hicks Muse is keen to take a longer view than some other private equity groups, nearly three years after taking over food group Hillsdown, while other private equity controlled UK food groups are already planning floatations or trade sales.
Lyndon Lea, a London-based partner of Hicks Muse, said he expects to be running Premier for the next few years, while others, such as Rank Hovis McDougall, look for a float and United Biscuits seems destined to end up in Kraft Foods' hands.
"I think we will be taking another few years to run Premier. We are creating value in food and there remains a lot of acquisition opportunities," he said in an interview.
Hicks Muse bought Hillsdown in August 1999 for £822 million (€1.3bn), and immediately set about streamlining it - selling off or shutting down its poultry unit, separating its furniture operations and dividing food in the grocery and biscuit units.
The grocery business, named Premier International Foods, is worth around £1.1 billion and is a clear floatation candidate, while Burton's Foods, valued at £400 million, looks likely to end up being sold to a trade buyer.
"We have run Hillsdown for almost three years, whereas our average length of a deal is four-and-a-half years. There is enough going on in food, and we would like to keep adding scale," Lea said, adding he would look at any acquisition from £5 million up to £1 billion.
Premier has sales of just over £1 billion, after it bought a number of Nestle's UK brands, and core annual EBITDA (earnings before interest, tax, depreciation and amortisation) of around £150 million.
Hicks has cut 2,000 jobs across its food businesses and changed all senior management at the two divisions since it bought Hillsdown. It brought in Robert Schofield from United Biscuits to go for what Lea describes as "category focus".
Lea said he had created the lowest cost food manufacturer in the UK at Premier along five distinct lines - vegetable canning, Typhoo tea, Cadbury hot beverages, Hartley's and Chivers fruits and spreads, and pickles and sauces.
Hicks Muse bought the Nestle brands for £135 million earlier this month, but the sale of a loss-making business will bring its purchase price down below £130 million. It is buying £100 million of sales from familiar kitchen table brands like Crosse & Blackwell, Branston Pickle, Sarson's vinegar, Gale's honey, Sun-Pat peanut butter and Rowntree's jelly.
Lea said the future for Premier ranges from floatation to selling the five businesses separately, with no fixed plan.
On biscuits, Hicks Muse took over the old Hillsdown Horizon biscuits unit and bought Burton's Biscuits from Associated British Foods in October 2000 to create an enlarged group, called Burton's Foods, which includes brands such as Cadbury, Wagon Wheels, Jammie Dodgers and Maryland Cookies.
Lea has built up a strong UK number two biscuits company with a 22 per cent market share, after private equity-owned McVities group United Biscuits with 27 per cent, with annual EBITDA of £40 to 50 million on £330 million of sales.
He still sees one or two interesting opportunities outside other main UK biscuit players, such as Northern Foods and Danone's Jacobs unit, to expand the business.
But he believes the group is too small to float and this has prompted analysts to see the obvious buyer for Burton's Foods as Danone, which needs to bulk up its UK business. United Biscuits would be ruled out on competition grounds.
United Biscuits is owned by a consortium of Kraft and three private equity players - Cinven, DB Partners and Paribas Affaires Industrielles. But after a lock-up period that last until March 2003, Kraft, with its 25 per cent stake, can bid for the group, which was taken into private hands in May 2000 for £1.25 billion.
Rank Hovis McDougall, owned by private equity group Doughty Hanson, has appointed investment bank Credit Suisse First Boston to look at its options, which include a possible £1.5 billion float. Doughty bought RHM for £1.14 billion in July 2000.