Billions flow into food from private investors

EUROPEAN food and drink companies have become targets for private equity and venture capital investment, with the ingredients division of Denmark’s Chr Hansen company the latest acquisition to be snapped up from under the noses of bidders within the industry.

A global food ingredients giant like Danisco and Kerry Group was expected to buy the Danish company. Instead, it went to the PAI private equity firm.

The European food and drink industry is consistently pulling in more private equity funding than all other industries, except for technology, say sources at 3i, a world leader in private equity and venture capital.

According to its study of the sector, private equity and venture capital investment in European food and drink companies jumped from €2.7 billion in 2001 to €4.5 billion in 2002.

The Chr Hansen deal was worth €1.1 billion.

Last month, a €250m deal saw food and pharma group DSM sell its bakery ingredients operations to private equity firm Gilde.

Private equity fund EQT bought two dominant German-based flavour and fragrances manufacturers, Haarmann & Reimer and Dragoco, in 2002.

In 2003, Henkel of Germany, which has an Irish subsidiary in Little Island, Cork, sold its Cognis chemical division to a consortium of financial investors.

Food and drink is now seen as a safe investment area for outside investors, reflected also in food stocks, which outperformed other industry sectors in recent years.

And there’s plenty of choice for investors in this, the largest industrial sector in the EU, with a turnover of €800 billion per year, growing about 2% per year.

Even as farmers hit hard times due to food industry consolidation, investors are attracted. They see an industry very open to innovation, due to survival pressures in the face of intense competition, and ever tougher food safety and traceability challenges. They also see scope for extra profits from consolidation, because the industry is still fragmented, and mergers and acquisitions can deliver serious economies of scale.

Investors also see the opportunity of gains from disposal of non-strategic assets, when companies consolidate. There’s even some excitement amidst the safety of food firms as an investment, due to their closeness to fast developing biotechnology and information technology sectors.