Analysis

Hovis acquisition builds Endless bakery portfolio

By Rod Addy contact

- Last updated on GMT

The Hovis brand is 134 years old
The Hovis brand is 134 years old

Related tags: Bakery, Finance

Endless LLP's acquisition of Hovis builds its bakery presence, with the bread brand joining cake manufacturer Bright Blue Foods in the private equity firm's portfolio and opportunities for synergies, one financial adviser claims.

The deal was announced this morning (6 November) and follows a protracted bidding war. Italy's Newlat Food confirmed in October that it was among the contenders​. However, Premier and Gores Group finally decided to sell their joint stake in Hovis to Leeds-based Endless. Mark Lynch, partner at Oghma Partners, told Food Manufacture​: "It is possible that they may look to merge the business with Bright Blue which should deliver synergies across head office, back office, purchasing and possibly sales and customer synergies."

The bigger business could also create more potential for launching shares on the stock market, he added.

Lynch said Endless's strategy was to take struggling businesses and turn them around, with Bright Blue Foods and Karro Food Group - acquired by CapVest from Endless in 2017 - being classic examples of this. As a result, Hovis, which has already seen substantial financial growth in the past few years, was in good hands.

Warburtons, Allied Bakeries

However, Lynch said the brand still had a fight on its hands against strong challengers: "Medium term, Hovis remains up against two well-funded and well invested competitors in Warburtons and Allied​ [Bakeries] so the challenge will be to improve the competitive position whilst holding on to any cost savings that can be generated."

Robert Lawson, founder and managing partner of Food Strategy Associates, said the sale was 'a great outcome' for Premier Foods: "When they went into the arrangements with Gores they had a low confidence level that there would be a better outcome than writing off their investment. It seems they are £37m better off and have removed a distraction for senior management in managing this business."

The cash Premier gained through the deal would enable it to clear more of its debt and reduce its pension deficit issues. "Premier is increasingly getting on the front foot, and even able to contemplate bolt on acquisitions,"​ said Lawson. "And before the RHM acquisition went so wrong, the business had a strong track record of adding value through small branded bolt-ons.

'Hovis never fitted strategy'

"As for the impact on Premier strategy - Hovis never fitted the strategy except at a superficial level. The strategy was about acquiring un-loved great British brands, but they needed to fit into the Premier ambient grocery business model. And Hovis, whilst unloved and great, operated through a completely different distribution model because of the short shelf-life of the product and the direct to store distribution model. So offloading this business is a huge step forward strategically allowing premier to focus on what it is good at."

Commenting on the benefits for Premier, Darren Shirley, research analyst at Shore Capital, commented: "We see the proceeds as another welcome step in the broader deleverage of the Premier Foods Group, noting we currently forecast net debt at March 2021 of £387m.

"We see the potential for operationally driven upgrades as the Group continues to harvest the benefit of the transfer of calorie consumption to the Grocery retailers from out-of-home, a process we expect to benefit from lockdown 2.0 which comes during a seasonally import trading period for Premier Foods."

Endless

However, Lawson said Endless now clearly faced some challenges. "For Endless - it is more difficult to say. Management has done a fabulous job of turning around the fortunes of Hovis but there remain inescapable truths about the Hovis business.

"Its core markets remain in long term decline despite short term favourable winds from COVID. Its factory base is very poor relative to the much newer networks of its main competitors Warburtons and Allied - for example the average age of a Hovis bakery line is more than 50 years."

In a release on the development, Hovis, which is a finalist for the Training Award in the Food Manufacture Excellence Awards 2021​, stated: "This acquisition will allow Hovis to focus on delivering the next phase of growth by tapping into growing consumer demand for high quality, relevant and nutritious products that will be supported by investment in the brand and infrastructure of the business."

Nish Kankiwala, Hovis chief executive officer said: "Based on our extensive engagement with Endless LLP over the past several months, it became clear that both parties share a commitment to customers and colleagues and for building on Hovis’ heritage by investing in growing both the brand and product range.

'Strategic and operational value'

"This shared vision makes Endless LLP the best shareholder to support our ambitious plans. The acquisition will help drive our strategy for growth by bringing both strategic and operational value to Hovis. We are looking forward to working together to execute this strategy and to delivering the next phase of growth."

Francesco Santinon, partner at Endless, added: “Hovis is the instantly recognisable British bread brand with a strong and established heritage. We were extremely impressed by the management team and have great confidence in supporting and investing in its future as Hovis looks to achieve further expansion within the bakery category.”

Financial services firm Robert W Baird & Co advised Hovis, and investment banking business Houlihan Lokey advised Endless LLP on the transaction.

The Hovis brand is 134 years old. With headquarters in High Wycombe, the business employs 2,700 people and operates eight bakery sites, its own flour mill and a distribution network spanning the UK and Northern Ireland.   

Related topics: Bakery, Business Leaders

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