The ingredients sector provides a warning to the acquisitive to limit their targets to businesses that are a close fit, says Neil Sutton

There needs to be a close fit between acquisition targets and potential purchasers, especially in the current climate. A good example of this is the ingredients sector. A number of ingredients transactions have completed in recent months, notably Kerry’s two latest additions to its ever-growing family: Da Vinci, which specialises in flavoured syrups, and Crystals (natural fruit flavours).

Cargill, the US agribusiness giant, has also had the cheque book out, building its presence in Europe with the acquisitions of OCG Cacoa in France and the Duckworth Group in the UK, the latter marking its first foray into the flavours sector in Europe.

However, a number of potential deals involving ingredients businesses have failed to make it to the finishing line and, in most cases, this has been because the prize on offer has not fitted closely enough with the aspirations of the potential purchasers. In ingredients, this usually means that a business must have proprietary technology which enables it to stand out from the crowd, and it must be able to operate on a global scale.

One other feature of the current M&A market is the significance of private equity investors where, in the last few months, there have been further developments. Familiar names like Hicks, Muse, Tate & Furst continue to look for further consolidation opportunities, while Bridgepoint Capital, which backed the public-to-private of WT Foods in 2001, has provided further funds for WT to build its position in ethnic foods with the purchase of Marston Valley.

Among other PE investors, 3i reaffirmed its commitment to the food and drink sector with the E240m acquisition of Refresco. The Dutch-based company, which focuses on private label fruit juices and other soft drinks, has been built up through a series of acquisitions in the last three years.

Indeed, the soft drinks sector looks like it will be a source of significant deal activity as companies respond to changing consumer tastes and an increasing focus on healthy drinking as well as healthy eating.

In September Princes took control of Dairy Crest’s chilled juice business for £11m, while earlier Procter & Gamble announced it was exploring “strategic alternatives” for its Sunny D and Punica juice businesses.

Other players in the sector are considering their options, so watch this space.

n Neil Sutton is head of consumer products, PricewaterhouseCoopers Corporate Finance.

DateBuyerTargetDescriptionDeal value

Aug 03WT FoodsMarstonWT has strengthened its position in the ethnic foods market with the acquisition Valley Foodsof Marston Valleyna

Sep 03Princes LtdDairy Crest’s chilledDairy Crest’s juice business focuses on own brand product, primarily from juices businessconcentrate£11m

Sep 033iRefresco Holding Refresco is one of Europe’s largest manufacturers of fruit juices and carbonated (Netherlands)soft drinks E€240m

Sep 03Big Bear LtdFox’s Big Bear is an MBI vehicle led by Paul Wilkinson (formerly of RHM). Fox’s, which was sold by Northern Foods, is best known for its Fox’s Glacier Mints, but also operates brands such as Paynes Poppets and XXX Mints£9.4m

Sep 03Cargill Inc OCG Cacao OCG Cacao is a supplier of industrial chocolate to the European food industry, (US)(France)with plants in Belgium, France and the UKna

Sep 03Freiberger Stateside Foods3i has sold Stateside Foods, the chilled pizza company, to Freiberger, one of (Germany)Europe’s leading frozen pizza companiesna

Sep 03Qualitas EquityBellsola (Spain)Bellsola is the third largest Spanish producer of pre-cooked frozen Partners (Spain)bread doughna

Oct 03Richmond Oldfields Ice CreamOldfields is a Sheffield-based manufacturer of ice cream products, mainly Foodstwo-litre tubs and catering products£4.0m

Oct 03Secondary Redbridge GroupRedbridge’s management, with backing from Bank of Scotland, have acquired buy-out3i’s equity holding in the business. Redbridge supplies fruit and vegetables and flowers to the retail and wholesale sectors£13.5m

Oct 03Kerry Group Da Vinci Gourmet,Da Vinci is a leading manufacturer of branded flavoured syrups, confectionery Crystals Internationalsauces and tea concentrates. Crystals International is a specialist manufacturer (USA)of natural fruit and vegetable flavours$62m

Oct 03Cargill Inc Duckworth GroupDuckworth is a family-controlled company that is one of the largest independent (US)flavour companies in the UK. The two companies have reached an exclusive agreement and intend to complete the acquisition by the end of 2003na