A new breed of shell company is snapping up food manufacturing companies and reinvigorating the sector reports Glynn Davis
A a trend is emerging for small shell companies to join the stockmarket with the aim of raising finance to acquire a portfolio of food-related businesses. But what exactly is on the shopping lists of this new breed of acquisitive companies, which includes The Real Good Food Company, Conival, Glisten and Napier Brown Foods?
Cash shell Conival - which came to the Alternative Investment Market in August and raised £438,000 - is looking to create a celebrity-branded ready meals business and people are its target, according to John Maundrell, executive director.
“We plan to make our first acquisition in a few months, which involves signing people up and using their names,” he says. “We will initially tap into the celebrity chef phenomenon.”
After it has made its first acquisition, the company’s shareholders have committed to making another £292,000 available for further purchases. This could involve the company venturing into beverages and also working with celebrities outside the chef sphere.
Without any assets, Conival’s appeal to investors is based solely on its high profile list of directors who have pushed the company’s share price to a premium of 500% to assets. Among the board members are non-executive chairman Richard Thompson - son of David Thompson, the co-founder of Hillsdown Holdings - and Alexander Spencer-Churchill, a mate of chef Marco Pierre White.
Mat Wootton, deputy head of AIM, says: “Personalities are important in these businesses - it’s all about personalities and track records. But the directors will have to do their homework and they need to have defined strategy or they will struggle.”
Other companies have hit the market hunting for something different - manufacturing capacity. Glisten, The Real Good Food Company and Napier Brown Foods were all formed with the remit to acquire manufacturing companies producing own label foods.
Although The Real Good Food Company owned three manufacturing companies when it came to AIM in September 2003, it had only just bought them and its aim was to gain a listing to fund further purchases, and fast.
Pieter Totte, chairman, believes that with some assets under its belt, the company was able to extract a better price from institutional investors.
This decision was based on his experience creating Finsbury Foods from the cash shell Megalomedia, the vehicle initially created by Lord Saatchi to acquire various dot.com businesses. With a listing and early evidence of progress at its three acquired companies - Hayden’s Bakeries, CoolFresh and Seriously Scrumptious - The Real Good Food Company raised a further £10m in December to fund the £16.6m purchase of Five Star Fish completed in April.
Totte says The Real Good Food Company is also growing its business organically: “We want to buy turnaround businesses and grow them. If we see a company that needs a different approach and it’s in the real low cost arena with the right people, then we will see how we can improve it to get strong organic growth. You need to give these companies a blood transfusion.”
He says Five Star Fish was an ideal target as it was using only 60% of its capacity and had 30% operating profit. Likewise Hayden’s Bakeries, which is now in profit on sales of £15m compared with the £1m loss on turnover of £10m that it achieved before it was bought.
The Real Good Food Company aims to benefit from the ongoing consolidation in food processing by buying under-utilised plants. This is coupled with its decision to concentrate only on own label production that insulates it from the troubles of the likes of Nestlé and Unilever, which are being squeezed by the supermarkets.
Unlike the large own label suppliers, The Real Good Food Company avoids commodity lines and focuses on “quality products that need a high level of skill” and have higher margin for the likes of M& S and Waitrose.
As the supermarkets grow their premium own label lines, then the company should be in a strong position, according to Totte: “I’m in own label as I want to be on the same side as the retailers. If you have good operational capacity and work hard on availability at the right price, there are fantastic opportunities.”
Don’t believe all the stories about supermarkets throwing suppliers out on a whim, he says: “They only throw you out if you screw up. You just need to keep coming up with new ideas for them.”
Napier Brown Foods is also pursuing a strategy of acquiring food manufacturing businesses - predominantly of sugar-related non-branded ingredients and associated food products - that supply a range of supermarkets and other food manufacturers.
It came to market in December 2003 and raised £9m, which was used immediately to acquire three companies. It subsequently purchased James Budgett Sugars from Greencore for £17.5m in July and Renshaw Scott for £18.5m in September.
Equally acquisitive is Blackburn-based Glisten. Although it came to AIM in July 2002 - with the objective of immediately using £7.5m of the cash it raised to purchase Glisten Confectionery (GCL) - in recent months it has ramped up its corporate activity by adding a variety of manufacturing businesses to its portfolio. Its most recent deals include the acquisition of Penguin Confectionery of Carlisle from toffee maker House of York in March and the purchase of confectionery manufacturer F Fravigar in January.
Glisten chairman Jeremy Hamer - who recently resigned as chairman of Inter Link Foods - says the company has the odd tertiary brand on its books but its focus is squarely on acquiring small family-owned businesses and unwanted divisions of large companies that produce unbranded food products.
“We sold the business on our management expertise and our clarity of focus on what we were trying to do - and it did not involve brands,” he says.
But he admits that, however good the story, it is never easy raising money from the City when floating a company. Like Totte, he believes the biggest attraction to investors is the quality of the management team: “It’s the biggest determinant of success and the price at which you can raise money. Very difficult strategies have been executed by good teams.”
With a proven team - and City investors willing - he expects the company to play an even greater part in the sector’s consolidation in the future: “We will continue to acquire businesses - and sell whenever necessary - and seek to raise money from the market again in the future.”
Hamer is confident that Glisten’s strategy of buying manufacturing capacity for own label products should ensure that “in 10 years we will have grown strongly against the brands”.
With many in the food industry thinking branded goods are not the place to be right now, given the recent profits warnings from a variety of large food companies, expect more companies to come to market to pursue similar strategies to that of Glisten and its fellows.
A a trend is emerging for small shell companies to join the stockmarket with the aim of raising finance to acquire a portfolio of food-related businesses. But what exactly is on the shopping lists of this new breed of acquisitive companies, which includes The Real Good Food Company, Conival, Glisten and Napier Brown Foods?
Cash shell Conival - which came to the Alternative Investment Market in August and raised £438,000 - is looking to create a celebrity-branded ready meals business and people are its target, according to John Maundrell, executive director.
“We plan to make our first acquisition in a few months, which involves signing people up and using their names,” he says. “We will initially tap into the celebrity chef phenomenon.”
After it has made its first acquisition, the company’s shareholders have committed to making another £292,000 available for further purchases. This could involve the company venturing into beverages and also working with celebrities outside the chef sphere.
Without any assets, Conival’s appeal to investors is based solely on its high profile list of directors who have pushed the company’s share price to a premium of 500% to assets. Among the board members are non-executive chairman Richard Thompson - son of David Thompson, the co-founder of Hillsdown Holdings - and Alexander Spencer-Churchill, a mate of chef Marco Pierre White.
Mat Wootton, deputy head of AIM, says: “Personalities are important in these businesses - it’s all about personalities and track records. But the directors will have to do their homework and they need to have defined strategy or they will struggle.”
Other companies have hit the market hunting for something different - manufacturing capacity. Glisten, The Real Good Food Company and Napier Brown Foods were all formed with the remit to acquire manufacturing companies producing own label foods.
Although The Real Good Food Company owned three manufacturing companies when it came to AIM in September 2003, it had only just bought them and its aim was to gain a listing to fund further purchases, and fast.
Pieter Totte, chairman, believes that with some assets under its belt, the company was able to extract a better price from institutional investors.
This decision was based on his experience creating Finsbury Foods from the cash shell Megalomedia, the vehicle initially created by Lord Saatchi to acquire various dot.com businesses. With a listing and early evidence of progress at its three acquired companies - Hayden’s Bakeries, CoolFresh and Seriously Scrumptious - The Real Good Food Company raised a further £10m in December to fund the £16.6m purchase of Five Star Fish completed in April.
Totte says The Real Good Food Company is also growing its business organically: “We want to buy turnaround businesses and grow them. If we see a company that needs a different approach and it’s in the real low cost arena with the right people, then we will see how we can improve it to get strong organic growth. You need to give these companies a blood transfusion.”
He says Five Star Fish was an ideal target as it was using only 60% of its capacity and had 30% operating profit. Likewise Hayden’s Bakeries, which is now in profit on sales of £15m compared with the £1m loss on turnover of £10m that it achieved before it was bought.
The Real Good Food Company aims to benefit from the ongoing consolidation in food processing by buying under-utilised plants. This is coupled with its decision to concentrate only on own label production that insulates it from the troubles of the likes of Nestlé and Unilever, which are being squeezed by the supermarkets.
Unlike the large own label suppliers, The Real Good Food Company avoids commodity lines and focuses on “quality products that need a high level of skill” and have higher margin for the likes of M& S and Waitrose.
As the supermarkets grow their premium own label lines, then the company should be in a strong position, according to Totte: “I’m in own label as I want to be on the same side as the retailers. If you have good operational capacity and work hard on availability at the right price, there are fantastic opportunities.”
Don’t believe all the stories about supermarkets throwing suppliers out on a whim, he says: “They only throw you out if you screw up. You just need to keep coming up with new ideas for them.”
Napier Brown Foods is also pursuing a strategy of acquiring food manufacturing businesses - predominantly of sugar-related non-branded ingredients and associated food products - that supply a range of supermarkets and other food manufacturers.
It came to market in December 2003 and raised £9m, which was used immediately to acquire three companies. It subsequently purchased James Budgett Sugars from Greencore for £17.5m in July and Renshaw Scott for £18.5m in September.
Equally acquisitive is Blackburn-based Glisten. Although it came to AIM in July 2002 - with the objective of immediately using £7.5m of the cash it raised to purchase Glisten Confectionery (GCL) - in recent months it has ramped up its corporate activity by adding a variety of manufacturing businesses to its portfolio. Its most recent deals include the acquisition of Penguin Confectionery of Carlisle from toffee maker House of York in March and the purchase of confectionery manufacturer F Fravigar in January.
Glisten chairman Jeremy Hamer - who recently resigned as chairman of Inter Link Foods - says the company has the odd tertiary brand on its books but its focus is squarely on acquiring small family-owned businesses and unwanted divisions of large companies that produce unbranded food products.
“We sold the business on our management expertise and our clarity of focus on what we were trying to do - and it did not involve brands,” he says.
But he admits that, however good the story, it is never easy raising money from the City when floating a company. Like Totte, he believes the biggest attraction to investors is the quality of the management team: “It’s the biggest determinant of success and the price at which you can raise money. Very difficult strategies have been executed by good teams.”
With a proven team - and City investors willing - he expects the company to play an even greater part in the sector’s consolidation in the future: “We will continue to acquire businesses - and sell whenever necessary - and seek to raise money from the market again in the future.”
Hamer is confident that Glisten’s strategy of buying manufacturing capacity for own label products should ensure that “in 10 years we will have grown strongly against the brands”.
With many in the food industry thinking branded goods are not the place to be right now, given the recent profits warnings from a variety of large food companies, expect more companies to come to market to pursue similar strategies to that of Glisten and its fellows.
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