It’s been more than 15 years since Premier Foods finished a remarkable acquisition binge that left it floundering in a sea of debt and pension obligations.
Today, the supplier unveiled its first deal – not counting the move to take full control of powdered drinks and desserts under its joint venture Knighton Foods in 2016 – since the 2006 tie-up with RHM to add Mr Kipling, Bisto and Hovis to its stable of brands.
And just as the RHM takeover put Premier on the road to spending the best part of a decade as a zombie, the £44m acquisition of The Spice Tailor signals the group’s final transformation back to the land of the living as a fully functioning business.
Analysts have greeted the move warmly and the City rewarded the stock with a 3.5% lift to 116.2p. Shares are now 254% higher than when CEO Alex Whitehouse took charge in August 2019, adding more than £715m to the value of the group in the process and getting market cap back above £1bn.
“While RHM presaged over a decade of crisis and zombiefication, this current move looks much less risky, and much more astutely judged,” says Martin Deboo of Jefferies.
Whitehouse has diligently got on with the unsexy but necessary work to chip away at the debt pile, clean up the legacy pension schemes, sell off unwanted brands such as Hovis and getting the fundamentals working properly again.
A slice of luck also helped as the Covid crisis suddenly put Premier’s portfolio of trusted household names front and centre in shoppers’ minds when stocking up cupboards, supercharging sales growth along the way.
All that work finally left the balance sheet in a position where Whitehouse could turn his attention to something more exciting.
The acquisition of the Indian meal kit business follows last week’s trading update, in which Premier handsomely beat City expectations for Q1.
As well as the higher investment in marketing and continued focus on innovation, Premier pointed to the ongoing elevated demand for home cooking options in driving sales.
The Spice Tailor deal looks to be a savvy one in this context and complementary for Premier in several areas.
It meaningfully adds to Premier’s top line, with expected revenues of £17.3m in the current financial year providing plenty of headroom for growth.
The brand slots in nicely besides Sharwood’s, Loyd Grossman and Homepride, sitting more towards the premium end of the category and appealing to home cooks who want to do a bit more than pour a jar over some meat and veg.
The Spice Tailor has made significant headway since its 2011 launch with listings at Tesco, Sainsbury’s, Morrisons, Asda, Waitrose and The Co-op and compound annual growth rate of above 20% in the past four years,
Premier, with its distribution reach and category management skills, will feel very confident in its ability to significantly boost the brand further. The long line of other Spice Tailor SKUs, including biryanis, daals, pastes and naans, gives plenty of scope to expand distribution.
On top of this, The Spice Tailor sets itself apart in a crowded market thanks to the authenticity generated by founder Anjum Anand, a renowned cookbook writer, TV presenter and entrepreneur.
It also aligns nicely with Premier’s international growth aspirations – mirroring the group’s presence in Canada, Ireland and, in particular, Australia, which accounts for 35% of The Spice Tailor’s annual sales.
Darren Shirley of Premier’s house broker Shore Capital says he is confident of “bright days” ahead for the group if this deal sets the tone for future activity.
Deboo adds: “What can now be a virtuous circle of reinvestment, allied to tuck-in acquisitions, has the potential to preserve this new growth momentum.”
It remains to be seen whether Premier can maintain this positivity in Q2 and Q3 as suppliers wait anxiously to see if squeezed shoppers start trading down into own label in great numbers.
However, Premier’s first foray on the M&A trail in quite some time signals a willingness to take decisive action to keep that new growth momentum moving forward despite all the uncertainties.
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