M&A is at record levels. British heritage and independent brands are outperforming their global competitors through innovation, demand is rising as UK consumers prioritise brands defined by innovation, provenance and trust, and international consumers are increasingly attracted to the values these brands represent

1. Heritage and Independent
Food and Drink Brands
M&A update
Autumn 2013
M&A at record levels for heritage and independent brands
Demand for British heritage and independent food and drink brands is rising
as UK consumers prioritise brands defined by innovation, provenance and trust,
and international consumers are increasingly attracted to the values these brands
represent. This is supporting M&A with both trade and financial acquirers driving the
level of M&A activity to a post-2007 record high.
The key observations from our research:
Heritage and independent brands (“HI brands”) are outperforming
their global competitors through innovation
HI brands have a track record of reinventing product categories
and being highly responsive to consumers’ needs. This allows them
to dominate a product category and expand distribution whilst
simultaneously using high levels of customer loyalty to stretch an elastic
brand into new categories. This is attractive to large corporates which
struggle to replicate such flexible innovation with customer loyalty in new
high-growth sectors.
British brands and brand values are highly exportable
ritish brands are trusted internationally and the values associated with
B
“Britishness” are well understood, making HI brands internationally
competitive. Acquirers and investors are attracted by the potential for
significant sales growth through international roll-out.
High level of family ownership supports strong long-term
deal pipeline
ifficulties accessing significant funding and succession issues mean
D
many family-owned brands will use MA to support further growth.
Both PE and trade buyers will be active, with PE using its skills to grow
those brands that are earlier in the investment cycle whilst trade buyers
target plug-in acquisitions of more established brands.
“ e understand the complicated
W
dynamics involved in valuing
heritage and independent
brands given their higher growth
characteristics and potential
future profitability.”
Simon Peacock, Director
Catalyst Corporate Finance LLP 2013
Challenging economy and food scandals are pushing consumers
to trusted brands
The challenging economic environment has caused a flight to quality or
value by consumers. At the same time, scandals such as horsemeat mean
consumers are prioritising provenance and the traceability of ingredients.
This is putting pressure on brands in the middle ground and leading to
investment or disposal by their large corporate owners.

2. Heritage and Independent Food and Drink Brands
The UK food and
drink sector is
outperforming the
broader UK economy
Heritage and independent brands are
outperforming their global competitors
The rising demand for higher quality
foods, premium taste experiences and
the impact of recent high profile food
scandals are increasing the appeal
of HI food and drink brands relative
to the big brands owned by large
corporate competitors.
The brand values which HI brands
exemplify – authenticity, quality,
provenance, nostalgia, freshness and
innovation – are even more attractive to
consumers in the current environment.
Such characteristics increase consumer
confidence and generate loyalty in the
brand values.
Brands are capable
of dominating their
product categories
MA update
At a macro level, the UK food and drink
sector is enjoying strong growth with 6.5%
CAGR for the last three years compared
to below one percent GDP growth, and
exports have increased by 38% since 2009
to £18 billion in 2012. The UK grocery
market is worth over £163 billion and
forecast to grow by 18% over the next five
years to £193 billion, with internet food
shopping representing an increasingly
important share of the market. Growth in
these markets is underpinned by developing
trends such as innovation, consumer
polarisation and provenance, which in
turn are favourable to the strong growth
of HI brands.
Heritage and independent brands are achieving brand leadership
through innovation
plastic pouches rather than traditional
glass jars. It now has an 18% share of
the UK baby-food market.
HI brands have a proven track record of
innovation and therefore are capable of
transforming product categories through
their creative use of ingredients, packaging
and responsiveness to consumers’ needs
and behaviours. This allows even very
young companies to build consumer
loyalty quickly, leverage brand elasticity
and consumer trends in new product
development (NPD) and grow rapidly,
see Figure 1.
Innocent’s use of non-concentrated
fruits allowed them to communicate a
“better tasting” smoothie with higher
nutrition than its competitors. It now has
an 80% market share in the UK and
sells in 15 countries worldwide.
Innocent has successfully leveraged its
strong market position and brand
elasticity to extend into the broader
fruit-based drinks sector, flavoured
water and has developed products in
vegetable and noodle pots.
Organic baby food manufacturer Ella’s
Kitchen was a leader in packaging by
offering its food in convenient, flexible
Figure 1: 2 year CAGR (turnover) of selected heritage and independent brands
60%
40%
33%
25%
18%
20%
16%
14%
11%
10%
9%
Nairn’s
Oatcakes
Walkers
Shortbread
0%
Ella’s Kitchen
2
Tyrrells
Innocent
Soreen
Fiddes Payne Bottlegreen Wilkin Sons
Limited
(Tiptree)
Source: Fame, calculated using latest publicly available turnover
Catalyst Corporate Finance LLP 2013
60%

3. Heritage and Independent Food and Drink Brands
Polarisation between quality and value retailers
The prolonged challenging economic
environment and pressure on household
incomes has influenced consumers’
behaviour, creating a polarisation away
from the “middle-ground” grocery retailers
and brands with a flight to quality or value.
Aldi, Lidl and Waitrose are achieving record
market share at the expense of the big four
supermarkets, despite the ‘premium’ of
Waitrose being a very different proposition
to the discounters. The flight to value
or quality is putting increasing pressure
on the middle ground brands. Typically
owned by large corporates, they are
struggling to respond quickly to this
environment and owners such as Unilever
and chilled food manufacturer Bakkavor are
divesting non-core businesses from their
food portfolios.
MA update
Consumers have
higher levels of
trust in heritage and
independent brands
Consumers are prioritising provenance following food scandals
The recent horsemeat scandal has
influenced consumers’ shopping habits,
increasing the importance they attribute
to the traceability and provenance of
ingredients and undermining their trust in
some retailers, as demonstrated by the fall
in sales of chilled and frozen convenience
meals containing meat reported by the
largest supermarkets. Consumers are
showing higher levels of trust in
locally-sourced and authentic ingredients,
and low levels of processing typical
of HI brands.
“n today’s difficult economic climate,
I
Fiddes Payne’s 5 year CAGR of 16%
reflects the powerful combination of high
product quality, excellent packaging
innovation and an ambitious management
team. International business represents
25% of sales reflecting British skills
in quality, packaging design and the
importance of strong brands.”
Iain Macpherson, Managing Director, Fiddes Payne
Spotlight: British brand values are highly exportable
Tyrrells The £40 million acquisition of premium crisps
brand Tyrrells in 2008 by Langholm Capital enabled
significant investment to be made in capacity to enable
broader distribution in the UK and overseas, new
product development and brand management.
Overseas sales increased from 12% of total sales
in 2009 to 17% in 2012. Tyrrells has recently been
acquired by Investcorp for £100 million.
Fever-Tree LDC’s £98 million investment in premium
tonic water and mixers brand Fever-Tree will help
to strengthen the brand’s presence in the UK and
Spain, accelerate expansion into the US and help drive
international growth.
Clipper Teas Royal Wessanen acquired Clipper Teas
in 2012. Whilst Clipper is the UK leader in organic
and fair trade teas, it successfully stretches its brand
across tea, coffee and hot chocolate. Wessanen is
leveraging its European network to grow Clipper,
with roll outs in France, Netherlands and Germany
in 2013. Clipper has contributed over h1 million in
revenue in year one.
Figure 2: Overseas sales as a proportion of total
sales is rising for heritage and independent brands
42%
19%
17%
13%
17%
16%
13%
8%
Ella’s
Kitchen
Thomas
Tunnock
Tyrrells
Clipper
Teas
2010
Catalyst Corporate Finance LLP 2013
British brands are trusted internationally. “Britishness”
is strongly associated with heritage and continuous
innovation. The appeal of these values to consumers
internationally is supporting the growth of those
HI brands that also appeal to consumers’ taste
preferences in different countries, see Figure 2.
The potential to achieve significant sales growth
outside the UK is driving MA.
2012
Source: Fame
3

4. Heritage and Independent Food and Drink Brands
Acquirers have different MA objectives
High levels of innovation by HI
brands, consumer polarisation and
the importance of provenance are
supporting rising levels of MA.
Acquiring these brands enables buyers
to access higher growth opportunities,
new sectors and new geographies.
Bright Food, one of China’s largest food
groups, acquired 60% of Weetabix for
£1.2 billion in 2012 from Lion Capital.
Increasing urbanisation and higher
disposable incomes are creating
demand for Western-style breakfast
diets and brands in China.
Gain access to pioneering brands
Extend product range
Large corporates often struggle to replicate
the product and marketing innovation and
associated brand loyalty that HI brands
such as Innocent, Gu and Bottlegreen Drinks
achieve. Large corporate brands can lack
credibility with consumers looking for a more
dynamic or trusted brand. As such, some
large corporates are keen to acquire leading
brands with established heritage, which use
authentic ingredients with provenance, and
which have a loyal customer base in order to
access high-growth opportunities.
Acquisitions are being driven by the
strategic need to increase the consumer
offering and broaden portfolios of
HI brands.
Coca-Cola has made a number of
strategic acquisitions to capitalise on
health and wellness trends. In 2007,
the company made the £2.1 billion
acquisition of Glaceau to increase its
presence in the fast-growing
enhanced-water and energy-drink
markets. This was followed by the
£100 million acquisition of Innocent in
2013. Entrepreneurial brands can
leverage the resources of their large
corporate owners to scale their brands
in their domestic markets and expand
internationally. The challenge for owners
like Coca-Cola is to continue new
product development which maintains
the core aspirational brand values
customers are willing to buy in to.
natural and organic food
US
manufacturer Hain Celestial recently
acquired Ella’s Kitchen. The acquisition
complements their Earth’s Best line of
organic foods for infants. In conjunction
with Ella’s Kitchen’s founder, Hain will
use its distribution platform to grow the
brand in the US and EU, and leverage
Ella’s Kitchen’s brand elasticity to
expand in the UK with new feeding
and personal care products.
4
Blackstone-owned Tangerine
Confectionary, the largest UK-owned
sugar confectionary and popcorn
manufacturer, has been a serial acquirer
of privately-owned heritage brands.
The company has made four
acquisitions since 2006, including the
acquisition of two of the UK’s oldest
brands, Smith Kendon Travel Sweets
and York Fruits.
2012, Hain Celestial made the
In
£202 million tactical acquisition of
heritage jam brand Hartley’s from
Premier Foods to complement its wider
condiments portfolio. Hartley’s has a
heritage which dates back to 1871.
Associated British Food plc’s 2012
£34 million acquisition of Elephant Atta,
the UK’s largest ethnic flour brand,
will complement its other ethnic brands
including Patak’s pastes and sauces,
acquired in 2007.
SHS Group, the FMCG holding
company and owner of sparkling juice
brand Shloer, acquired Bottlegreen
Drinks from Piper Private Equity in
2011. SHS was attracted to the brand’s
strength, international growth potential
and brand elasticity. Bottlegreen has
expanded from the original elderflower
cordial to over 22 different varieties
including flavoured sparkling spring
water and tonic water.
Catalyst Corporate Finance LLP 2013
Large corporates
using MA to
access high growth
opportunities
MA update

5. Heritage and Independent Food and Drink Brands
High levels of family ownership creating
significant pipeline of acquisition opportunities
Low start-up costs, established
production methods and accessible
consumers and routes to market mean
that food and drink brands with the
values associated with heritage and
independence still have a high level of
private and family-ownership because
the early barriers to entry are low.
Ownership can stretch back over
generations, especially for the larger
(and probably older) brands like Warburtons,
the largest baker in the UK which is run by
the fifth generation. Whilst some companies
want intergenerational ownership, there
will be an increasing flow of companies
looking to sell or secure investment as new
generations look to crystallise value or to
grow brands (see Spotlight below).
Deal volumes are at record levels
rade buyers account for the majority
T
of activity (see Figure 4) and dominate
acquisitions of those brands with
turnover greater than £20 million,
see Figure 5. Large UK and overseas
buyers are attracted to the strategic
opportunities these brands offer and
are targeting manufacturers with strong
and growing brand equity, brand
elasticity, a successful record in
developing new products, and the
potential for international growth.
MA update
PE is targeting
early investment
stage brands
is typically investing in HI brands
PE
with lower turnover, and is attracted
to brands with a high level of consumer
loyalty, innovative new product
development record and growth
potential. PE use their skills to invest in
professionalising distribution capabilities
in existing and new routes to market,
developing branding and marketing,
and supporting capacity for NPD.
Specialist mid-market houses have
established a strong record in growing
entrepreneurial brands. For example,
Langholm Capital, which owns Barts
Spices and Purity Soft Drinks, grew
Tyrrells Crisps significantly, doubling
turnover between 2008 and 2013
before exiting to Investcorp. Piper
Private Equity invested in Bottlegreen
in 2007 when turnover was £8 million;
sales had increased to £13 million
at exit in 2011.
Spotlight: Multi-generational ownership of brands
supports long-term deal flow
Figure 3 illustrates that 60% of MA transactions
involving family-owned HI brands since 2006 were
executed by the second generation or older. In the
UK SME sector overall, around a third of family firms
tend to be passed onto the second generation and a
tenth reach the third generation. Hence the majority
are sold or closed down well before reaching the later
generations.*
Patak’s Foods and Cadbury are well-known examples
of where third and fourth generation companies have
sold to large listed global trade buyers. US-based Kraft
Food acquired 168 year old Cadburys in 2009 for
£13.7 billion when turnover had reached £5.4 billion.
Similarly, Associated British Foods plc acquired Patak’s
for £125 million in 2007 when turnover was almost
£50 million.
Figure 3: 60% of family-owned heritage and independent
brands are sold by second generation or older
40%
Catalyst Corporate Finance LLP 2013
Family-ownership in food and drink businesses is strong
but with high price expectations, it can take time for a
family to agree their succession strategy or even exit.
40%
30%
33%
20%
20%
10%
0%
7%
First
Generation
Second
Generation
Third
Generation
Fourth
Generation
Source: Mergermarket
*The UK Family Business Sector, Institute for Family Business, 2008
5

6. Heritage and Independent Food and Drink Brands
MA update
Private equity has a successful exit record
Private equity is
exiting to trade and
financial buyers
PE has a successful record selling
heritage and independent brands to
both trade and other PE buyers to
support further growth.
Lydian Capital Partners’ Wellness
Foods, which owns Rowse Honey,
acquired Dorset Cereals from Langholm
Capital for £50 million in 2008,
representing a four-fold increase on
Langholm’s original investment.
Blackstone’s 2011 investment in
Tangerine Confectionery marked a 3.8x
return on investment for Growth Capital
Partners at exit.
has made a number of sales to trade.
PE
For example, Lion Capital sold 60% of
Weetabix to Bright Food for £1.2 billion
having acquired the leading branded
cereal manufacturer for £677 million in
2004. The SHS Group’s acquisition of
Bottlegreen was an exit for Piper and
Royal Wessanen’s acquisition of Clipper
Teas was an exit for Flemings.
“ ritish brands stand out for their
B
quality and authenticity in the UK and
internationally. We are working with
forward-thinking brands like Patisserie
Valerie, GAIL’s Artisan Bakery and
The Bread Factory to strengthen their
businesses and expand their markets.
Consumers are rewarding the quality
of their products and service with high
levels of loyalty.”
Luke Johnson, Chairman, Risk Capital Partners
Overseas acquirers will pay more
Despite the challenge of independent
brands, large global and US firms have
performed well over the last three years
and have outperformed companies in
Europe due to the robust and mature
nature of the overall industry in a
challenging economy. Valuations of
European companies fell in mid 2011
when the Eurozone debt crisis was at
its peak. Combined with a strong US
Figure 4: Number of deals since 2006
2
4
3
4
3
3
£15m
6
7
3
£10m
2
1
1
1
1
1
1
2008
2009
2010
2011
2012
£5m
0
17
9
£0m
2006
2007
Trade buyer
6
£20m
Source: Mergermarket *September
PE buyer
2013
YTD*
£20 million
Trade buyer
Source: Fame *Where disclosed
£20 million
PE buyer
Catalyst Corporate Finance LLP 2013
3
5
5
5
4
£25m
6
6
Brands that demonstrate strong
strategic importance have proven that
a significant premium can be achieved
on typical profit multiples of more
established quoted food companies.
Figure 5: Turnover in year of deal (£m)*
7
7
dollar, the European market will look
relatively cheap to US buyers, allowing
them to pay more than domestic
acquirers.

7. Heritage and Independent Food and Drink Brands
MA update
Figure 6: Selected Deals
Date
UK Target
Target Description
Acquirer
Country
Sep-13
Whitworths Limited
Manufactures fruit and nut snacks and nutritional food supplements
Equistone Partners
UK
Sep-13
Nom Dairy UK
Manufactures dairy products
Muller UK Ireland Group LLP
UK
Aug-13
Tyrrells Potato Crisps Limited
Produces and supplies potato chips
Investcorp
UAE
May-13 Ella's Kitchen Group Limited
Manufactures and distributes premium organic baby food
Hain Celestial Group
USA
Mar-13
Fever-Tree (49% Stake)
Tonic and spirits manufacturer
Lloyds TSB Development Capital Ltd
UK
Feb-13
Innocent Limited (Undisclosed Stake)
Deal value
(£m)
90.0
nd
100.0
nd
98.0
Manufacturer of soft beverages
The Coca-Cola Company
USA
May-12 Weetabix Limited (60% Stake)
Produces and sells breakfast cereals and bars
Bright Food (Group) Co., Ltd
China
100.0
Apr-12
Purity Soft Drinks Limited
Producer of soft drinks
Langholm Capital LLP
UK
Mar-12
Clipper Teas Limited
Tea and coffee company
Royal Wessanen nv
Netherlands
nd
Feb-12
Speciality Desserts Ltd
Provides desserts for the food service industry
Europeenne des Desserts
France
nd
1,200.0
10.0
Nov-11
Fray Bentos
Tinned pie brand
Baxters Food Group Limited
UK
Jul-11
Tangerine Confectionery Limited
Manufactures sugar confectionery and popcorn products
Blackstone Group L.P.
USA
30.0
May-11 Bottlegreen Drinks Company Limited
Manufacturer and distributor of branded adult soft drinks
SHS Group Ltd
UK
Feb-11
Big Bear Group Plc
Food company
Raisio Group Plc
Finland
80.4
Jul-10
Rachel's Organic Dairy
nd
nd
Producer of organic dairy products
Groupe Lactalis S.A.
France
nd
May-10 Bart Spices Limited
Supplies herbs and spices
Langholm Capital LLP
UK
nd
Apr-10
Innocent Limited (40% Stake)
Manufacturer of soft beverages
The Coca-Cola Company
USA
127.6
Nov-09
Cadbury Plc
Manufacturer of beverages and confectionery products
Mondelez International, Inc
USA
13,730.7
Jun-09
Elizabeth Shaw Ltd
Chocolate manufacturer
Imagine Capital AS
Norway
nd
May-09 Salads To Go Ltd
Maker of prepared leaf salads
Groupe Florette
France
nd
Jun-08
W Jordan Son (Silo) Limited
Supplier of breakfast cereal, bars and wheat bran
Associated British Foods Plc
UK
nd
Apr-08
Tyrrells Potato Crisps Limited
Produces and supplies potato chips
Langholm Capital LLP
UK
40.0
50.5
Mar-08
Dorset Cereals Limited
Breakfast cereals producer
Wellness Foods Limited
UK
Mar-08
Red Mill Snack Foods
Manufacturer of snacks
Tayto Crisps Limited
Ireland
Dec-07
Clipper Teas Limited
Tea and coffee company
Fleming Family Partners Limited
UK
26.6
Indian food ingredients company
Associated British Foods Plc
UK
125.0
May-07 Patak's Foods Ltd
nd
Source: Capital IQ
Contact Us
Simon Peacock, Director
Simon has over 15 years of financial
management and corporate finance
experience gained within industry
at United Biscuits and professional
services. He leads our Consumer
sector team and is an expert in the
Food Drink industry. Simon has
completed a number of deals in
the sector including the sale of
Red Mill Snacks to Tayto Group and
the sale of Salads to Go to Soleco UK.
Mark Farlow, Partner
Mark has over 20 years’ corporate
finance experience. He has a strong
record and reputation as a Travel
and Leisure sector specialist and
has completed a number of deals
including the management buy-out
of Esprit Ski and more recently,
Amber Travel. Mark is also a member
of Catalyst’s Consumer sector team.
Steve Currie, Partner
Steve has over 15 years’ corporate
finance experience working at private
equity and corporate advisory firms.
He leads our work focusing on
financial sponsors and is a member
of our Consumer sector team. He has
completed a number of deals in
the sector including the management
buy-out of Farrow Ball.
7
Catalyst Corporate Finance LLP 2013
Catalyst Corporate Finance has an experienced team of consumer experts led by Simon Peacock (Food and Drink)
and supported by partners Mark Farlow (Travel and Leisure) and Steve Currie (Retail and Consumer Brands). If you
would like to discuss this report in more detail or the opportunities for your business, call +44 (0) 20 7881 2960.

8. Catalyst Food Drink deals
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