Michael Carey inherited the secret of how to get the figs into the fig rolls when he engineered the purchase of the Jacob's biscuits business 17 years ago from France's Danone for about €64 million.
The entrepreneur, who cut his teeth in business in the 1970s selling Jacob's Cream Crackers and Coconut Creams in his parents' newsagents in Cabra, would merge Jacob's with the Nestlé Ireland larder of brands, including Fruitfield jams and Chef sauces, which he led the purchase of in 2002 for about €25 million.
But Carey never imagined when he sold the Jacob Fruitfield Food Group in 2011 to the then newly formed Valeo Foods, controlled by Cavan native Seamus Fitzpatrick's private equity firm CapVest, how it would become part of a roll-up machine for a host of orphan food brands and ultimately reach €1.2 billion of annual sales.
“Our plan in building Jacob Fruitfield got to a certain point when we exited,” said Carey (59). “But the team in there took it to a completely different place and showed how they could build a world-class business of scale. They’ve done an extraordinary job.”
In the early hours of last Monday, Bain Capital, the Boston-based private equity giant co-founded by former US presidential candidate Mitt Romney, signed a deal to buy Valeo for more than €1.7 billion, giving it 85 household brands, from Odlums flour to Fox's Glacier mints, that are sold in 106 markets.
The driving force behind the growth of Valeo has been Seamus Kearney, the former Aer Lingus chief operations officer who was part of an abortive management buyout plan for the airline in 2004 and subsequently hired by Carey to help run Jacob Fruitfield. Valeo appointed Kearney (56) as chief executive.
The sale of Valeo Foods has taken place against a sweet spot of a market awash with private equity cash looking for deals, following a pause early last year amid Covid-19, an era of ultra-low market interest rates that has been reinforced by central bank actions to stop the pandemic leading to a financial crisis, and households turning to nostalgic – if unfashionable – food brands and home baking to get them through lockdowns.
"Valeo and other ambient branded businesses such as Premier Foods have had a bonanza in the pandemic. CapVest have picked a good time to get out. There is just too much private equity money desperate for deals," said Julian Wild, a corporate finance director specialising in the food and drink sector with Yorkshire-based law firm Rollits.
“This is entirely driven by timing and the weight of money looking for a home. Valeo is a decent portfolio of well-established brands but it’s a very mature set of businesses. It was never going to attract a trade buyer because there aren’t any. It was always going to be down to a financial buyer who thinks they can get more out of the group.”
Valeo was formed in 2010 as CapVest backed the combination of Batchelors, a company behind products from baked beans to canned spaghetti hoops, and Dublin-listed Origin Enterprises' foods Odlums, Shamrock and Roma brands. It made its first acquisition outside of the Republic in 2014 by acquiring the UK's biggest honey brand, Rowse Honey.
In May 2015, Valeo completed its first acquisition in continental Europe with the purchase of leading Italian-based food producer Balconi, which specialises in the production of sponge-based cake products and biscuits.
Earlier this year, Valeo bought German confectionery group Schluckwerder, famous for its Lübeck marzipan sweets, in a deal that added almost 500 staff to build its workforce to 4,500 and boost annual sales to €1.2 billion. All told, the company has completed 18 acquisitions since its foundation.
Staff in Republic
The Republic now accounts for less than one-third of group revenues and about 600 of its 4,000 employees. "It's comforting to have been told by management this week that the sale will have no impact on the business here," said Colm Casserly, an industrial organiser in trade union Siptu's manufacturing division. "But the €1.7 billion price tag on the deal jumps out when you consider we've just agreed a 2 per cent pay rise with Valeo for workers who have been slogging away during the pandemic."
While Valeo was reported in 2014 to have been preparing for an initial public offering, it came to nothing.
By 2017, as the CapVest Fund II, in which Valeo was invested, was coming to the end of its investment cycle, its remaining holdings – also including at the time the Mater Private Hospital – were sold to US private equity firm HarbourVest Partners. Many of the CapVest II investors took up the chance to roll their interests into the new fund, which continued to be managed by Fitzpatrick’s outfit.
It emerged in January that CapVest had hired Goldman Sachs to find a buyer for the highly indebted company, with Bain, London-headquartered private equity house Cinven and Paris-based PAI Partners ending up on a short list at the end of last month, with final bids originally scheduled for the end of month.
However, Bain, which is said to have been ahead of its rivals in the bidding, is said to have piled on the pressure last week to do a deal. CapVest declined to outline the returns that are being made by underlying investors in Valeo.
Valeo’s closest publicly quoted peer, Premier Foods, has seen its share price soar almost 350 per cent from its March 2020 lows to leave it with a market valuation just north of £850 million (€987 million). However, it is still trading at a multiple of about six times its earnings before interest, tax, depreciation and amortisation (ebitda).
The Bain deal has been set at more than 10 times Valeo’s €170 million ebitda. Industry observers point out that the Irish company has a broader international footprint across Europe, and that Valeo’s brands have benefited from heavy investment in marketing and innovation – with Rowse, for example, taking on Nutella by venturing into chocolate spreads earlier this year. But the toppy price suggests Bain has big plans.
Market sources say that Valeo has been looking at US deals for some time. The backing of a major US private equity firm, whose grocery and foodservice investments have included Brakes Group, Dominos Pizza and Burger King, would give access to the financial power and market knowledge to carry out a major acquisition in North America, they say. Last month, Bain agreed to buy Dessert Holdings, the Minnesota-based maker of premium cakes and desserts, in a deal reported to be worth $1 billion (€830 million).
Kearney, who will remain in charge of Valeo following the takeover, would be all too aware of the European food companies that have lost their shirts chasing deals on the other side of the Atlantic. In Ireland alone, C&C, Aryzta and Greencore bear the scars of chasing American dreams, even if the examples of Kerry Group and Glanbia offer hope.
“An IPO was always part of the thought process for Valeo, but the nearest local comparison is [London-listed] Premier Foods, which has had its fair share of problems in the past,” a market source said. “A big US deal could pave the way for a listing in New York, where it could attract a high enough multiple to justify what Bain is paying.”
However, Wild, at Rollits, says Bain and Kearney “will have their work cut out to grow the business to the levels they require” to justify the high valuation – and secure a profitable exit in the future through a sale or IPO.
“It’s not a particularly compelling proposition strategically and I don’t see what holds this disparate group together,” he said. “Where’s the glue?”
From orphan jam and sweet brands to €1.2 billion sales machine
2002: Michael Carey leads purchase of Nestle's unwanted, loss-making manufacturing plant in Tallaght, whose Chef sauces, Fruitfield jams and confectionery brands such as Silvermints, Double Centre and Scots Clan were generating about €25 million in annual sales, to form Fruitfield Foods
2004: Fruitfield buys Danone's Irish biscuits business, W&R Jacob, for €65 million, giving it products such as Jacob's Cream Crackers, Fig Rolls, Kimberley Mikado and Coconut Cream
2006: Jacob Fruitfield hires Seamus Kearney, former Aer Lingus chief operating officer and part of a trio of managers behind a failed 2004 management buyout attempt for the airline, as managing director
2008: Jacob Fruitfield closes Tallaght factory, which dated back to 1970s, with loss of 220 jobs
2010: Valeo Foods formed as Dublin-listed Origin Enterprises merged its Odlums, Shamrock and Roma brands with Batchelors in deal backed by UK private equity firm CapVest, led by Cavan man Seamus Fitzpatrick; CapVest takes 55 per cent of group, with Origin holding 45 per cent
2011: Valeo buys Jacob Fruitfield, of which chairman Michael Carey owns about 52 per cent, in cash-cash-and-stock deal worth about €70 million to create company with €300 million of sales; Seamus Kearney becomes group chief executive and Carey sells out over time
2014: Valeo carries out first deal outside Ireland, buying UK honey brand Rowse from Wellness Foods, which was backed at the time by John Magnier and JP McManus; Valeo reportedly mulls IPO
2015: Valeo ventures into continual Europe with purchase of Italian sponge cakes and biscuits company Balconi in deal reportedly worth €200 million
2015: Origin sells its 32 per cent stake in Valeo to CapVest for €87 million
2015: DCC, the energy-to-technologies conglomerate, sells its Robert Roberts coffee, Findlater Wine & Spirits and health foods Kelkin brands to Valeo for €60 million
2017: Finish food group Raisio sells its confectionery division, including Fox's Glacier mints, XXX Extra Strong Mints and Poppets to Valeo for €96 million
2017: Valeo buys second Italian business in desserts maker Dolciaria Val d'Enza for €16 million
2018: UK-based Tangerine Confectionery, home to sweet brands Barratt, Dib Dab, Refreshers and Black Jack, is bought by Valeo from US private equity group Blackstone for over £100 million (€116 million)
2019: Valeo acquires European snacks business from Campbell Soup, including Kettle Foods and Yellow Chips, for £66 million, and Christmas pudding maker Matthew Walker for £67 million
2020: Valeo buys It's All Good, supplier of private label tortillas to supermarkets and owner of the premium Manomasa chips brand, for about £25 million
2021: Valeo gains a foothold in the German market by acquiring Schluckwerder, a confectionery manufacturer famous for its Lübeck marzipan sweets, to bring group sales to €1.2 billion
2021: US private equity giant Bain Capital agrees to buy Valeo in deal worth more than €1.7 billion