THE Irish food sector continues to offer hope for the future.
While the banks flounder, key players in the food sector continue to forge ahead offering the economy prospects for growth at home and overseas.
It can be forgotten that food and drink exports are worth €8 billion to the economy and underpin thousands of jobs.
Any positive moves with the sector are welcome and the recent decision of Origin Enterprises and CapVest to merge their food interests into a new company, Valeo, is a sign that one sector of the economy is still showing signs of life.
“We have always liked the food sector as we believe it is fundamentally non-discretionary in terms of demand, while simultaneously offering real potential for consolidation and growth,” was Peadar Kearney’s take on the deal.
He is head of Origin Foods and takes over as chief executive of the dedicated food operation.
CapVest is owned by the Cavan businessman Seamus Fitzpatrick and further acquisitions are on the cards. It is understood the new business has about €200 million in capital to call on and is thought to be in the market for further acquisitions.
The creation of Valeo signals a step change for Origin and allows it to prioritise the development of its extensive agri-services that extends into Poland.
With the world needing more food and greater expertise in producing good arable crops, Origin is positioned on both ends of that spectrum and the outlook for growth is positive as the world strives for better nutrition for all, not just the privileged.
Origin will take a 45% stake in Valeo, while CapVest, the private-equity firm behind companies like frozen-food giant Findus Group, will control the rest.
Valeo has also agreed to buy Irish food business Batchelors, whose brands include Batchelors baked beans, Erin cooking sauces and Sqeeze juice drinks. Origin brands such as Roma Pasta and Shamrock Foods as well as Odlums, will all become part of Valeo also.
Combined the group will have a turnover of about €200m, but the €200m it has in its back pocket for further takeovers is equally interesting.
That amount of money won’t facilitate major deals, but it puts a bit of heft behind the new group which presumably will do bolt on deals as they present themselves in the future.
The merger reflects the desire of groups to have a clear strategic focus and Origin clearly felt that separating the two parts of the business made more strategic and commercial sense.
Perhaps the link up with CapVest was the easy part.
It’s a tough environment out there and Kearney may take his time before making the group’s first takeover.
At this stage Valeo has some of the best known brands on the grocery shelves in Ireland. That, presumably, will give the enlarged group more muscle when dealing with retailers.
It is not clear whether that motivated the deal or whether the respective parties saw that a merger would allow greater flexibility in the longer term.
It is also the case that companies have come down in price and any deals Valeo might want to move on will be available at prices that will yield a return within a reasonable time frame.
With the enormous pressures on the economy, deals in the food sector are good news as they demonstrate there is life in key indigenous parts of this economy.
It’s a reasonable assumption that there are a lot of good Irish companies out there with good brands, but without the commercial muscle to move to the next phase of development.
The formation of Valeo perhaps offers some hope to a number of companies that the ambitions they had setting up may be realised through a link up with the newly formed group.
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