Progressiveness still at heart of Irish food sector
Two transactions of significance happened shortly before year-end .
Fyffes and Greencore are two companies that were forged in Ireland and have been led by a succession of Irish business leaders over the past 20 years.
Fyffes, which originated as a small fruit business in Dundalk, has accepted a cash bid from the giant Japanese conglomerate Sumitomo.
The bid marks a sharp premium to the share price prevailing before the approach and is a handsome reward for its investors. The company has been ambitious for growth over many years.
It attempted a merger with the huge US fruit company Dole during the 1990s and two years ago came close to buying Chiquita.
In both cases its efforts were frustrated by reluctant sellers or competing bids but these transactions reflected a strong view within the Fyffes board that scale was essential for long-term success.
The Sumitomo bid ticks vital boxes in this regard as it brings financial firepower to equip Fyffes with the resources to grow further.
While money is always a key variable when deciding stock market transactions I suspect the outcome for Fyffes employees was a highly important component of the deal.
For Sumitomo, with vast capital in its home market generating low returns, and a strong Yen which makes the purchase of assets in other currencies more attractive, the deal was compelling. It gets a well-managed business with a big footprint in key markets and a balance sheet that is not overly stretched.
Greencore, in contrast, is ploughing its furrow independently by acquiring a major US food company for over $700m.
Peacock Foods gives Greencore critical mass in the large US food market and brings new customers and products to the business alongside sales of about $1bn and profits of over $70m.
Greencore has been forging a presence for years in the US through organic investment and selective acquisitions but Peacock moves it onto a different level in terms of scale and reach.
It tapped its own shareholders via a rights issue to finance the deal and received their approval during December. Peacock is a long way from the sugar processing and malt businesses that defined Greencore shortly after it was floated on the Irish Stock Exchange in 1991.
It was clear, then, that the company needed to diversify earnings and its range of products if equity value was to be created over the long-term.
I’m a great believer in the business concept of clusters, sets of companies in a similar industry that spark off each other and inspire. The Irish food companies are such a cluster.
While serving very different markets and industries they share one common denominator - hugely ambitious Irish management teams.
Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.
