The IUF's Private Equity Buyout Watch

Following the overnight bankruptcy of the Topps meat company in October as a consequence of the second-largest recall of contaminated meat in US history, food safety concerns have again emerged in connection with private equity ownership of food companies.

Four cases of botulism poisoning in the US and 2 in Canada have been linked to carrot juice produced by private equity-owned Bolthouse Farms of Bakersfield, California, the largest North American carrot producer, with annual sales of ca. USD 400 million. Private equity investors Madison Dearborn Partners began buying up shares in Bolthouse in 2005, beginning with a USD 1.2 billion 57% stake in the business.

On September 29, the US Food and Drug Agency urged consumers not to drink the company's carrot juice when a Florida woman suffering from paralysis become the fourth US victim. "Cases of botulism from processed food are extremely rare in the US", noted the FDA. Two cases of botulism poisoning linked to the product were subsequently identified in Canada, suggesting the problem may be at the source or in the company's cold chain rather than lying with inadequate refrigeration on the consumer end, as Bolthouse has suggested. On October 9, the US Centers for Disease Control and Prevention noted in an official release that "information obtained from patient interviews regarding storage and transport of the carrot juice did not confirm mishandling by the patients."

Bolthouse recalled the suspect juices - and has begun laying off workers, starting with those responsible for…food sanitation, i.e. the key workers in the food safety chain.
On November 5, the Bakersfield Californian reported that "Wm. Bolthouse Farms Inc., one of the nation's largest carrot producers, last week told at least 100 workers they would be laid off from the company's Bakersfield plant on East Brundage Lane, according to the United Farm Workers labor union. Many of the affected workers were employed in the company's sanitation department, the unit responsible for scrubbing machines to protect against the spread of foodborne illnesses such as the E. coli bacteria, UFW organizing director Armando Elenes said.

"The UFW learned of the layoffs through worker reports and a Friday letter to workers from Bolthouse Farms human resources director Tom Selim.

"As most of you are aware, the Company is undergoing some organizational changes here at the E. Brundage Plant that are designed to improve our efficiencies as well as lower our operating costs," the letter reads.

"Layoffs associated with this reduction in force will become effective on January 2, 2008, which is the date we anticipate your employment will be terminated," the letter states.

Raul Montes, 42, says he worked for Bolthouse Farms for almost 10 years. He learned of his impending termination early Friday morning, after concluding his night shift in the sanitation department."

The following day, the paper reported that "About 200 workers at Bakersfield's Wm. Bolthouse Farms Inc. carrot production facility will lose their jobs around Jan. 2, according to a brief statement released by the company Tuesday.

"The total exceeds the United Farm Workers' Monday estimate of 100 to 120 affected workers.

"The layoffs are the result of a "restructuring of the company's organization" and will "help Bolthouse retain its competitive advantage," the release states."

Posted on November 8, 2007 01:10 PM | Permalink

The UK's Peter's Food Service, a manufacturing and food service distributor of pastry products, has been bought by private equity investors' NBGI, who paid GBP 20 million for majority ownership combined with an equity stake from the current management.

The debt, the details of which were not disclosed, was financed by Royal Bank of Scotland.

Peter's is described in the NBGI announcement of the deal as "a £53million-turnover manufacturer and food service distributor of savoury pastry products including meat pies, pasties and sausage rolls. These are sold to thousands of outlets throughout England and Wales, ranging from the major national supermarkets, to football grounds and local fish and chip shops.

"The company employs 640 staff across two divisions. The food service division has developed from a traditional van sales operation into a leading, service-orientated supplier of chilled and frozen foods with 10 sites including London, Cardiff and Birmingham. The manufacturing division produces over 100 million pastry products each year at its facility in Bedwas, South Wales."

NBGI acquired UK sandwich maker/food service provider Brambles Foods in 2003, which swallowed competitor Harry Mason 2 years later. In April this year, it sold the business for GBP 22 million - 4.3 times the original outlay - to Adelie Food Holdings, a construction backed by private equity fund Duke Street Capital. Adelie was created through the acquisition and merger of the Thomas Food Group, Buckingham Foods and Food Partners. Duke Street also owns Burton's Foods, the UK’s second largest biscuit manufacturer after United biscuits. Duke Street is thus building up a strong position in both manufacturing and ready-to-to/food service sectors.

And the buyouts roll on…

Posted on November 8, 2007 11:48 AM | Permalink

Buyout funds have poured a record Euro106.4 million (ca. USD 152 million) to date this year into snapping up food processing companies in India. This sum compares with total food sector buyouts of Euro 4.2 million for all of 2006, comprised of two big deals. This year there have been 11 substantial food company buyouts.

The enormous influx of buyout money into Indian food production has raised serious regulatory, development and food security concerns in the country.

Private equity buyouts account for a high and rising percentage of government-approved foreign direct investment (FDI) in the food processing sector, which is expected to top Euro 2.1 billion in 2007-08.

Indian financial regulators have expressed concern over the extent and the implications of mushroom private equity flows in general, the bulk of which goes into unlisted companies. Officials at the Reserve Bank of India are increasingly worried that unregulated investment flows into the booming real estate sector (including farmland) are driving up asset prices while contributing little to real development, and that capital repatriated to private equity investors is draining financial resources from productive investment. Drawing attention to the unpredictable nature of these flows, Reserve Bank of India Governor Y. V. Reddy recently conceded to India's Economic Times that "capital account shocks" could not be ruled out and that regulatory measures were needed to get a grip on these flows.

The rapid expansion of the Indian food processing sector, fueled by a growing middle class with greater disposable income, rapid growth (and concentration) in the modern retail sector, and tax breaks and subsidies for export processing zones has given an enormous boost to India's food processing sector, which is expected to triple in size over the next 8 years. Only 8 percent of non-diary food in India is currently processed. According to a recent study, value addition in food products is expected to increase from the current 8 per cent to 35 per cent by the end of 2025. Fruit and vegetable
processing, which is currently around 2 per cent of total production will increase to 10 per cent by 2010 and to 25 per cent by 2025. Crucial to this expansion is the process of greater integration into retail sales, including direct production for retail chains, and a forced march into global supply chains.

India's Yes Bank earlier this year set up a dedicated private equity fund of USD 100 million targeting exclusively the agrifood sector. Their Food and Agribusiness India Fund plans to invest its entire amount in 1-2 years, earmarking $5-7.5 million per company and expects an average annual return of 20-25 percent, according to Yes Bank official releases.

A typical example of private equity feeding industrial food processing is Field Fresh, launched initially by India's Bharti Enterprises (a USD 16 billion holding company) together with the European private equity Rothschild Group. Fresh Field initially exported onions, chilies, okra and other vegetables to Western retailers, including the UK's Tesco. On September 27, Bharti announced that Del Monte Pacific Ltd. was buying in to the company. According to the Indian Financial Express, "The development is essentially seen as a back-end support to the Bharti Retail initiative, which has entered into a technical alliance with the world’s largest retailer Wal-Mart. Field Fresh will also be serving the wholesale or the business-to-business models, which means it will also serve stores like the Metro Cash and Carry and the Bharti-Wal-Mart stores, which are going to come up by December 2008.

Field Fresh was essentially an export agro-based company and has been exporting fresh fruits and vegetables to various markets including UK, the Middle East and Europe. But now with the retail scene becoming increasingly attractive, Field Fresh will now be venturing into food processing as well."

Agrifood projects have been an important feature of the policy of land seizures carried out by Indian state governments, notably in West Bengal. Productive farmland has been seized and handed over to financial investors, subsidizing through low acquisition prices and tax and other subsidies the displacement of small farmers and landless labourers. The replacement of staple food crops with processed exports has generated hunger and rising insecurity in these areas and given rise to fierce opposition from workers and the rural poor.

Posted on November 5, 2007 05:33 PM | Permalink