UK-listed Greencore is to acquire US frozen breakfast sandwich and children’s snacks maker Peacock Foods in a deal worth $748m which cost £594m at the exchange rate when the deal was signed. A £439m rights issue will part-fund the purchase of Peacock along with new debt facilities of approximately £200m.

Peacock generated revenues of approximately $1bn (£798m) with profits (EBITDA) of $72.1m, valuing the deal at around 10 times earnings.

The rights issue will comprise nine new Greencore shares issued at 153p per share for every 13 existing Greencore shares.

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According to Greencore chief executive Patrick Coveney, this deal “will transform our US business, strengthen our position in high-growth categories, broaden our channel and customer exposure, and add significant scale to our operations”. He has managed to get this deal through during a period of huge uncertainty, given both Brexit and the surprise US election outcome.

The company also reported an 11% increase in full-year revenues despite a “challenging and uncertain retail and economic environment in the UK”.

For the year ended 30 September, group revenue increased 10.6% to £1,481.9m (€1.7bn), up 5.9% on a like-for-like basis. Group profits (EBITDA) increased 13.9% to £138.4m, with operating profit up 11.2% to £102m.

Net debt increased some £66m to £331.8m, mainly driven by an increase in capital expenditure and the acquisition of The Sandwich Factory last year. However, it was also affected by the depreciation in the value of sterling since the UK referendum.

Shares soared 15% on the announcement. Shares closed at £3.25 on Tuesday, down 18% from their record high of £3.96 set last April.

Comment: from sugar to sandwiches

Greencore is a company well used to transforming. Following the privatisation of Irish sugar in 1991 when Greencore was formed, it used the cash-cow sugar business to enter the convenience food sector in 2001. By 2006 it had exited the sugar business entirely taking advantage of the EU sugar restructuring scheme and received €127m in compensation.

Roll on 10 years and Greencore has transformed into the world’s largest sandwich manufacturer and is set to transform again with the acquisition of Peacock.

This deal takes Greencore up a gear or even two in terms of revenues, new category expansion and manufacturing scale, particularly with regard to its US operations.

Greencore first entered the US in 2008 but has found it difficult to expand its US business to one of significant size, despite heavy investment to expand capacity with new factories in Rhode Island and Seattle. This acquisition provides Greencore with a US manufacturing footprint of scale, adding seven large factories and making it five times the size of its current operations.

It should also sit well alongside its existing US customers, such as Starbucks and 7-Eleven. It will increase its exposure to leading brands in fast-growing categories such as Kraft-Heinz, Tyson, Kellogg’s and General Mills, giving it scale and growth in the grocery channel.

Greencore’s US convenience foods division currently account for 15% of group revenues. Following the acquisition of Peacock this will rise to 45% as it brings about £800m in revenues. This quadruples the US business to about £1bn in revenue, making it more or less the same size as the company’s existing UK business.