Poultry category 'hot space' for activity, says Shore Capital
Cargill and Faccenda are the latest businesses that have announced a partnership after entering into a yet to be named 50-50 venture.
According to Shore Capital, the partnership will be a "demonstrable new force in the market".
Faccenda processes 100 million (m) chicken per year, whilst Cargill processes 200m.
The announcement follows on from the Crawshaw Group plc entering into "transformational" supply chain partnership with 2 Sisters Food Group. Meanwhile, Moy Park was purchased by Pilgrim's Pride earlier this month, after being sold by JBS.
The Cargill and Faccenda partnership will incorporate Cargill's British fresh chicken business and all of Faccenda Foods. The deal will include Faccenda Foods' duck and turkey businesses.
Andy Dawkins, current managing director of Faccenda, will take the lead on the new venture. "Management believes that this will be a complementary combination, naturally, speaking of a long-term commitment to the market and providing stability and security to our customers, suppliers and growers for years to come. The combination comes at a time when some players have been experiencing profit pressure and challenging returns."
Shore Capital did warn that the status of Cargill and Faccenda will draw the attention of the Competition and Markets Authority (CMA). It is expected that the CMA will conduct potential competitive implications of the deal.
Moving forward, the investment group questioned how smaller processors will respond to the new mergers. "With this high level of M&A activity amongst what is now a demonstrable 'Top-3' in the UK, subject to the CMA of course, no doubt other smaller players in the chicken market will be watching developments with varying perspectives and degrees of interest. Banham is a smaller player (maybe half the size in chicken volumes of Faccenda) supplying fresh chicken to the UK retail trade. We shall watch with interest to see how that business reacts to market matters."
Shore Capital highlighted Cranswick plc as a more recent entrant into the UK poultry market after acquiring Crown Chicken and Benson Park in Kingston-upon-Hull. It noted that the Faccenda/Cargill merger could represent a potentially unexpected step forward for Cranswick.
"That very successful acquisition, embracing considerable expansion through investment in the prepared poultry arena, latterly primarily servicing the food service market, was followed by the acquisition of Crown Chicken in 2016, the integrated feed mill, hatchery and fresh poultry processor (c25m birds per annum) based in East Anglia; a business that we visited this summer and one with considerable potential in our minds."
Shore Capital said Cranswick will also be keeping a close eye on other mergers.
