The odds are probably against him, but it’s not over until the fat lady sings, or at least until January 21 when the takeover panel says Boparan must either put his cards on the table and make a formal bid or walk away from Northern Foods.
But is he serious?
As City analysts have been quick to point out, Buxted’s chicken boss will struggle to compete with Greencore when it comes to extracting synergies from the deal and then there’s the small matter of Northern Foods’ £107m pension deficit to tackle, but we shouldn’t write him off just yet.
Boparan, after all, has some pretty impressive pedigree in the food sector, having transformed 2 Sisters Food Group from a regional retail cutting outfit to a poultry empire with 17 sites and sales approaching £1bn in just 18 years, for a start.
He is also no stranger to doing deals, having snapped up a clutch of businesses in recent years from chip shop chain Harry Ramsden’s to fish supplier Five Star Fish and restaurant chain Fishworks and most recently Dutch poultry processor Storteboom Group.
A credible bidder
In other words, while he’s never sniffed around anything the size of Northern Foods before, he’s clearly a credible bidder, suggests Simon Peacock at Catalyst Corporate Finance.
“I’ve met his investment team and he’s got access to good people both from a due diligence perspective but also in terms of assessing operational capabilities and efficiencies.”
Another corporate finance source adds: “[Northern Foods’] pension liabilities are a problem, but Ranjit’s highly regarded by the major retailers and he’s got some pretty heavyweight advisors, so if he can raise the money, I think the market will be pretty interested.
“I also don’t think he would have embarked on this unless he was serious about it."
Grant Thornton’s food sector head Phil Jackson notes that Boparan tends to divide opinion, with “some people really respecting him and others loathing him”.
A 'pretty shrewd guy'
But he’s set to cash in regardless, he predicts: “He’s going to win either way because he’s got a pretty big stake in the company [Boparan has built up a 6.6% stake in Northern Foods] and even if he’s unsuccessful he’s going to make money out of this.
“But I don’t think he’s going to overpay. He’s a pretty shrewd guy.”
Panmure Gordon analyst Damian McNeela reckons that if Boparan is to make an offer, he will need to stump up at least 65p a share, in hard cash(Northern Foods’ share price is currently hovering at around 62p - well ahead of the 50p price implied in the Greencore merger proposal).
But the biggest problem is the pension trustee, says McNeela. "It's hard to get an up to date picture of Boparan Holdings' finances, but I took a look at the accounts to August 2009 where there were net debts of about £58m, and subsequent to that he acquired a Dutch poultry firm.
"So let's say he borrowed £200m to fund that, and then wants to spend £300m on Northern's equity. That's a lot of debt, and that's not a good position to be in when approaching the pension trustee.
"Having said that, I still wouldn't be surprised to see a formal offer. Boparan is very focused, ambitious and driven."
Roll up! Roll up for United Biscuits, Quorn, Ragu et al
Of course Northern Foods is not the only game in town this year, with several other firms in play including United Biscuits (which is owned by PAI Group and Blackstone and refusing to comment on press reports that it plans to auction off its biscuit arm this year), bits of Premier Foods’ sprawling empire including Quorn and canning sites in Long Sutton and Wisbech, Unilever’s ailing sauces brands Chicken Tonight and Ragu and a stake in sweetie firm Tangerine Confectionery.
Uniq could also change hands – once it has sorted out its pension problems - predicts Grant Thornton’s Jackson, while Brakes – acquired by Bain Capital in 2007 – is also one to watch.
There could also be a shakeout at Wellness Foods, which went on a buying spree just before the market started to drop, and could be under pressure to sell off some of its wares to get its house back in order, he speculates.
Findus, meanwhile, is “not working out at all” for private equity owner Lion Capital, observes another corporate finance source,
Private equity: ‘Sitting on big piles of money’
So who’s buying? As for trade buyers, R&R is on the lookout for new opportunities to build up its European ice cream empire while Unilever’s stated aim of doubling its sales in the next decade or so is unlikely to come from organic growth alone, however fast emerging markets are growing, suggest analysts.
The big guns in private equity meanwhile have also got plenty of money to play with, notes one corporate financier.
“I’d say things are right back to where they were pre-crunch when it comes to private equity. They are sitting on some big piles of money.”
Momentum is building
Catalyst’s Peacock adds: “We’ve had more calls in the last three months to pitch to private owners in the food sector than we had in the last 12-18 months put together.”
Bob Henry, partner at Matrix Private Equity Partners, adds. “There is a lot of money sloshing around, and also a sense of momentum. We’re looking at three potential deals in food at the moment.”
The banks meanwhile remain cautious lenders, but they are willing to part with some cash for the right deals, albeit at lower multiples than before, he adds. “If it used to be they would lend you four times [the potential target’s] earnings, now it’s perhaps two and a quarter, two and a half.”
The problem for any borrower is the sort of financial covenants they become committed to, which can be so restrictive that "you can have a couple of bad months and you’re in the hands of a bank”, he says.