So, the flavour of the moment in M&A circles is the impending sale of Marlow Foods (“Quorn”) – the manufacturer of the Mycoprotein-based Quorn and tofu-based Cauldron Foods brands. Interest in the sector remains strong, following soon after the sale of Canadian plant-based frozen protein brand gardein, which was acquired by NYSE-listed Pinnacle Foods in November 2014 for a 2.7x sales multiple.
Quorn was private equity investor Exponent’s first deal in the food sector having acquired the business, alongside co-investor ICG, from a struggling Premier Foods back in 2011. Since then they have invested heavily in three key areas: product innovation, marketing and international growth. The results have been impressive with EBITDA roughly doubling to a current estimate of £35m-£40m and an increased sales presence in 15 countries worldwide (it entered the German, Danish and Finnish markets in 2014 alone).
The long term target is to grow Quorn into a $1bn business – approximately four-to-five times its current size – and international growth (particularly in the US) will be fundamental to achieving this. In 2014 Quorn announced a £30m investment to install a new fermenter at its site in Billingham in the North East of England, which will eventually double production capacity as well as significantly increasing its global marketing spend.
It therefore comes as no surprise that the list of potential acquirers will have a distinct international flavour. WhiteWave Foods, the US soy-protein group spun out of Deans Foods has already expressed potential interest; So to have Nestle, who were actively engaged in the 2011 sales process. Some commentators believe Hain Celestial – which has an extremely strong M&A track record involving UK food & beverage assets – as another likely contender. However, with Hain owning two of Quorn’s fiercest competing brands in the form of Linda McCartney in the UK and Yves in the US, we doubt they will be a likely acquirer, as potential competition-related issues and sales cannibalisation will prove to be too complex a set of hurdles to overcome.
Private equity interest will be strong – and houses including Lion Capital, CVC and Teacher’s Private Capital are likely to be licking their lips at the prospect of extending Quorn’s juicy global growth. The sale of a high profile British brand with a solid international footprint typically leads to much fanfare about the likelihood of purchasers from China and other emerging markets being interested. In this instance though, we feel comfortable in stating that this will be unlikely.
Meat consumption is growing rapidly in emerging markets – particularly in China and India (despite 35% of the latter’s population being vegetarian) – and is expected to continue its rapid growth over the next 5 to 10 years. This is in contrast to developed nations, where factors including health concerns, provenance and rising interest in low-meat diets has led to a plateauing in meat consumption. Whilst these drivers play into the hands of meat-free brands and their prospects for expansion throughout the Western world, it will do little to whet the appetite of emerging market groups – who predominantly want to exploit the significant untapped demand from the burgeoning middle classes within their domestic markets.
Quorn has laid down a set of robust foundations to help support its ongoing growth. This allied with a sound management team and a combination of market drivers which have swung the pendulum in favour of the company, has enabled it to post very healthy growth in both sales and profits. This will ensure a very competitive process, with the successful acquirer needing to pay a handsome premium to capture this prized asset.