IT mightn't be the biggest food company on the market, but Letterkenny-based Donegal Creameries could teach some of the bigger Irish dairy firms a few lessons on how to diversify away from the quota-limited and ferociously competitive dairy industry.
John Keon and Dominic Kelly have shrewdly refocused the group over the past few years and Donegal now has a range of interests extending from milk to animal feed to potatoes to farm leasing to confectionery, and now mushrooms following last week's joint venture take-over of Carbury Mushrooms for £12.6 million (€16 million).
The joint venture involving Donegal (40 per cent), NCF Co-op (26 per cent) and Carbury management (34 per cent) is paying less than eight times earnings for Carbury, which is the second-biggest mushroom producer in the State and which has contracts to supply a host of British multiples including Tesco, Sainsbury and Asda. That price does not seem excessive for what is still seen as a growth industry.
Essentially, Donegal and NCF are the financiers for a management buyout of Carbury, except that rather than looking to sell and take a profit after five years in the usual venture capital fashion, Donegal and NCF will eventually buy out the management and divide Carbury between them in a two-to-one split.
Carbury in recent years has expanded by buying mushroom operations in Britain, and the indications are that the company under its new ownership will continue that strategy.
And just to show that millionaires are created in industries other than the high-tech sector, Carbury founder Pat Walsh and his partner Charles Spencer will walk away from their company with more than £11 million (€14 million) in their bank accounts. There's money in compost, at least the sort they use to grow mushrooms.
Ever since it floated a couple of years ago, Donegal has been dismissed by the bigger players in the food sector as a minnow. But the group has shown that, whatever about its size, it is able to grow by diversification and acquisition while still looking after the Donegal dairy farmers who still own most of the group.
The big question is how long will it be before Donegal itself becomes a take-over target. A price/earnings rating of not much more than six means that Donegal Creameries shares are ridiculously cheap.
