Debt Drives Premier Foods, Largest UK Food Group, into the Arms of…Private Equity
Struggling under a mountain of acquisition-induced debt, the UK's Premier Foods is reportedly seeking a large cash injection from private equity investors in order to shore up its wobbly capital structure and avoid breaching loan covenants.
The largest UK food group, with annual sales of close to GBP 2.5 billion and rising, Premier is weighted down with close to GBP 1.8 billion in debt stemming from its 2006 acquisition of the UK/Ireland piece of Campbell's (since rebranded) and, in particular, the GBP 1.2 billion purchase of rival RHM. The acquisitions were followed by massive restructurings, plant closures and job losses.
According to recent UK press reports, Premier's advisor Goldman Sachs is pushing them to opt for a "cornerstone" investor to inject hundreds of millions of pounds into the company, with private equity funds Bain Capital, Blackstone, Lion Capital and Permira mentioned as possible candidates. All of them are flush with uninvested capital.
Premier's debt stands at 9 times the company's current market capitalization and 4.5 times EBIDTA - which is to say, its financial structure is that of a leveraged buyout. Commenting on the 2006-2007 acquisitions in its 2007 annual report, Premier stated "We considered the majority of these businesses to be underleveraged in the existing business structure."
Premier was in fact owned by international private equity operators Hicks, Muse, Tate and Furst from 1999 until 2004, when it was listed on the London stock exchange. During that period Premier added to their portfolio castoffs from Nestlé (including Crosse & Blackwell, Branston Pickle and Chivers) and Unilever (Ambrosia) as well as cereal maker Weetabix (now with Lion Capital, who have loaded it with debt to reap dividend payments). When the dotcom/telecom bubble burst and Hicks, Muse Tate and Furst imploded, its European arm separated to form Lion Capital, now a major private equity investor in the UK food sector.
Premiere's massive debt stands as one measure of the imprint of leveraged finance on publicly listed companies. Another - the mirror image - is the prominence of high-ranking corporate food executives in the private equuity business. Lion Capital's web site "history", for example, informs us that "Javier Ferrán joined Lion Capital after a 20-year career at Bacardi, the last two years as the President and Chief Executive, and George Sewell joined Lion Capital after a 32-year career at Quaker Foods, the last nine years as the President of Quaker Foods Europe." Further, "In early 2007, Mohamed Elsarky joined Lion Capital following a 20-year career as a senior executive in the branded food sector, the last three years as the President of Northern Europe for United Biscuits. Also in early 2007, Mary Minnick joined Lion Capital following a 23-year career with The Coca-Cola Company, the last two years as the President of Marketing, Strategy and Innovation, with responsibility for strategic planning, marketing, all new product development, product quality, global advertising, media, packaging and equipment worldwide. These last two appointments further deepened Lion Capital's consumer expertise, which is unparalleled within other private equity houses." All part of financializing food…