Management buyouts on the cards at Northern Foods

Northern Foods could be looking to management buyouts (MBOs) as the best way of offloading some of its traditional businesses as part of its radical restructuring plans.

“Demergers from larger operations - for example Northern Foods - are seen as excellent buyout opportunities,” said Katia Frank of Matrix Private Equity Partners, which has been involved in a number of smaller food industry projects.

Northern announced in May​ that it planned to sell off 40% of its business in response to falling sales and pressure on margins for a wide range of its products. It expected to raise about £200M through these sales over the next 12 to 18 months.

Although Ernst & Young is handling the disposal of Northern's NFT chilled distribution arm, there are unconfirmed reports that it could be the subject of a management buy-out backed by Phoenix Equity Partners for up to £60M.

Meanwhile, it is known that Stamford Partners has been appointed to handle the sale of two other parts of Northern's business: Park Cakes, which supplies own-label products to Marks & Spencer, and its pastry operation, which includes Pork Farms Bowers. The Smiths flour milling operation is also up for sale.

Matrix has been instrumental in three food sector MBOs over the past year. It financed the MBO of Pasta King, a provider of healthy 'quick-service' meals, alongside its management and HSBC (Exeter). It was also involved in the buyout of cake and desserts maker Maynard Scotts, and played a part in the £5M buy-in management buy-out (BIMBO) of frozen herb processor FH Ingredients last year.

“Management teams of smaller companies are increasingly aware of buyouts as a means of attaining an equity stake in a business they know well,” says Matrix md Mark Wignall. “Vendors, on the other hand, are acknowledging buyouts as an attractive means of exiting a business without risking the ethos and culture that they have created and nurtured over the years.”

Barclays is predicting further consolidation in UK food manufacturing as companies seek to achieve cost savings by buying out their competitors. John Laud, relationship director at Barclays, said fresh produce was likely to be a particularly active sector. “We are seeing a number of transactions in this area,” he said. Laud also expected significant consolidation in confectionery and frozen food.

Rather than foreign buyers being involved, domestic trade sales and purchases were more likely, added Laud, as the companies involved could afford to pay more because of “synergy savings”. Laud also expected further offshoring as companies sought to take advantage of increasing globalisation of supply chains.