Kerry’s brave call on Quest signals new era
Recent analysis by some top food analysts suggests that may well be the case.
Buying Quest marked a new direction for Kerry. It is a move into the biotech area seen as one of the key evolutionary points in the rapidly evolving story of the modern food industry.
It is an area given prominence by the Government in its drive to keep Ireland ahead in the race for economic growth and development.
Science Foundation Ireland is directing a lot of its €650m research budget into projects underpinned by biotechnology.
After his recent appointment as chief adviser to Government on scientific matters Barry McSweeney highlighted the importance of biotechnology in the future growth of the Irish economy, noting Kerry’s acquisition of Quest put it at the centre of this.
Dr McSweeney is hugely enthusiastic about the future direction of science in Ireland and its ability to make a very big impact on our standard of living well into the future.
But biotechnology, for those of us who know nothing about it, is a mystery accessible to only the highly intelligent.
It is also high risk. In the case of Quest presumably former owner ICI has brought its research and its commercial relevance well down the road to realisation. If it had its profits were relatively modest and it will require tender nurturing to get to the point where it becomes another major plank in Kerry’s unrelenting commitment to stay at the cutting edge of food technology and nutrition.
All of Kerry’s acquisitions have added to the group’s strategic presence in ingredients and flavourings and to its convenience food range whose primary focus is Britain and Ireland.
But one slip could spell disaster, and the higher up the high tech end of the food chain you go the risks, presumably, get higher.
However, those who know Kerry and its track record are content with the merits of this deal.
Davy Stockbrokers, who act for Kerry, say the deal will just be a modest boost to earnings in the early phase. Down the line that will increase as integration with Kerry’s existing operations is developed.
It was pointed out however that Kerry has paid a full price for the business and it will be up to Kerry to drive value from it.
It’s also been suggested the Quest deal is reminiscent of the Beatreme acquisition, that pushed Kerry onto the international food ingredients stage.
I’m not sure if there isn’t a touch of romance about that comparison.
Back then Kerry was simply a minnow on the international food stage and Beatreme gave it a propulsion that changed the face of the group forever.
The world has become a lot more complicated since then and competition in the food sector much more intense. Suggesting that Quest will have the same transformational impact on the group as Beatreme once did is too bold a prediction to make at this early stage.
While Kerry’s stock market performance has been out ahead of most in the context of the Irish market and rates well with international food companies there is a feeling that its commercial performance over the years deserves greater market recognition.
There is no doubt Kerry has the scientific and marketing skills to take this deal forward and to enhance the earning power of the group overall.
While Quest may only add €3m to earnings before interest and tax this year the belief is that, in buying Quest, Kerry has made another ground breaking move with long term positive implications for the group as a whole.
It certainly has been a brave call, even if it does only a fraction of what Beatreme did for the group then the future is bright.
