Move over private equity – there’s another strategy flexing muscle in the food and beverage investment space. And the bonus for New Zealand companies is it’s highly sustainable.
Before the world economy weakened in 2008, private equity firms were rapidly growing power in the investment world. Now the business community is taking into consideration other essentials seen in the new financial climate as important as monetary stimulations.
Dynamics behind some recent transactions in the food sector on which Cranleigh Merchant Bankers has advised, show business leaders are considering other critical elements of success when making their decisions. While successful deal flows can be driven by trade buyers, they can also be found in professional institutional investors with altruistic aims.
A marriage between well-known industrial player and charitable trust with good track records of investments presents healthy balance of monetary focus and social interest aspirations.
Take the recent transaction between Hubbard Foods and Rotorua Energy Charitable Trust. Hubbard’s founding shareholders wanted an appropriate strategic partner to help grow the business, rather than sell the business as whole. They saw it as the right move to maximise enterprise value.
Rotorua Energy Charitable Trust has well balanced portfolio of investment interests in several New Zealand companies. As an investment partner the trust will not only provide capital for Hubbard Foods to pursue further expansion, but also brings additional professionalism and expertise to the company board.
As the investment strategy of the trust has medium to long term focus, this transaction presents certain degree of stability and longevity – critical advantage over deals led by more opportunistic investors, such as private equity firms.
A key feature which makes this deal outstanding, however, is the charitable nature of the new investor. What makes partnership work at the first stage and will be strengthened over the long-term is not only profitable growth, but also the expectation that parties entering the relationship share the same fundamental values. In this case the trust’s philanthropic aspirations underscore and strengthen Hubbards’ image as socially responsible brand and support the company and its founding shareholders’ commitment to philanthropic aspirations, including sponsoring Outward Bound.
Another deal which Cranleigh facilitated last year, DB Breweries’ sale of Liquorland to supermarket chain Foodstuffs, shows similar success fundamentals. This time the successful purchaser is an experienced franchise operator, which runs as co-operative and is owned by community of New Zealand supermarket operators.
Owners of robust businesses with good potential should consider range of other things when they search for investors and business partners. We expect greater merger and acquisition (M&A) opportunities on the horizon for good business operators and professional investors.
I am always of the view that apart from monetary focus, long-term strategic fit and fundamental alignment of business values are key drivers of successful transactions.
Andrew Bayly is director, Cranleigh Merchant Bankers.
