A £400m merger of Fox’s and Burton’s Biscuits is on a knife edge after funding fell through at the final hurdle.
Former Golden Wonder CEO Clive Sharpe, whose track record includes a spell as Burton’s chairman, has been corralling support from institutional investors in a bid to bring the number two and three biscuit manufacturers together.
The complex deal would include setting up a special purpose acquisition company (SPAC) to float on the London Stock Exchange for the newly merged group - a replica of the model used by Nomad Foods, which floated in New York in 2015 ahead of the acquisitions of frozen food groups Iglo and Findus.
It is understood Sharpe has secured agreements from Fox’s owner Ranjit Boparan, who plans to hold 20% of the new group, and Burton’s parent Ontario Teachers’ Pension Plan, which will exit. He has also attracted a handful of “chunky” institutional investors to commit significant sums, valuing Fox’s at about £300m and Burton’s at £100m, sources told The Grocer.
However, the final investor needed to tip the funds over the target pulled out at the last minute, a source added.
“Clive is still working to get one final investor on board,” the source said. “If that happens it will be all systems go.”
If the deal does collapse, there are a number of mid-level private equity firms waiting in the wings to acquire the two businesses in the more traditional way, without a stock market flotation. Boparan is understood to have held meetings with a handful of interested PE investors.
“PE is very interested as it’s a simple story and it has scale to it, with synergies of at least £20m a year,” another City source said. “A lot of mid-bracket PE firms will be able to write an equity cheque of £40m to £50m and fund the rest through debt.”
A combination would create a stronger rival to Jaffa Cakes and Digestives maker Pladis, the Turkish-owned number one in the market, with a merged Fox’s and Burton’s generating annual sales of close to £600m and holding a 20% share of the category. Rumours of a tie-up between Fox’s and Burton’s have circulated for many years and Burton’s went back in for Fox’s in early 2016, but no agreement could be reached.
Ontario had pledged to grow Burton’s through acquisition and industry consolidation, but has failed to pull off deals of any scale - most notably missing out in the £2bn auction for United Biscuits in 2014
Sales dropped 9.3% in the year to 31 December 2016 to £259.6m as a result of the £200m sale of its Cadbury biscuits licence back to Mondelez and a wider decline in savoury biscuits.
“Ontario is in a situation where they don’t have any crown jewels left after restructuring. EBITDA is stable but they have a big pension deficit so need some way of getting out of this thing. They can’t just sit on their own, whereas Ranjit can.”
Separately, The Grocer understands Fox’s owner 2 Sisters is very close to selling Goodfella’s Pizza to Nomad Foods for £200m. Sources said the deal could happen before the week is out but was more likely next week. The deal would be the first acquisition for Nomad, which is seeking to build a frozen empire, since it paid £500m for Findus in August 2015.