St Albans-based Premier Foods’ £205m sale of its meat-free business and the ongoing saga over bids for Northern Foods have highlighted the potential of deals in the food sector. That’s according to dealmaker Russell Healey, a partner at Sevenoaks-based private equity investor Foresight Group. He told Insider that about ten per cent of current deals are food-related in some way.

And while not many deals are as large as the Premier or Northern deals, there are interesting opportunities to be found as owner-managed businesses come through the downturn, he said.

Healey cited the example of Hampshire-based organic baby food company Plum Baby, which grew by 30 per cent per year, while Foresight was investing in it before selling it to Darwin Private Equity.

“It’s businesses like this that we’re interested in – movers and shakers in a fairly moribund market that’s otherwise about unappetising bottles and jars.”

Healey thought the statement by Quorn purchaser Exponent and how it intended to expand the business could mean further acquisitions on its part, which would further raise interest in the sector.

The criteria for Foresight to invest in a business, said Healey, were a fast-growing business with a strong brand, product differentiation, a niche market and a passionate management team.

“Of the 40 to 50 deals we see per month a good chunk – probably four of five – are in some way part of the food sector eco-system,” he said.

Healey believes there has been a marked improvement in the quality of deals coming through, in all sectors. “Twelve or 18 months ago we were seeing distressed situations, with companies looking for emergency funding, wanting to take money out without necessarily having a desire to grow the business.” And to an extent, he observed, the Quorn sale is “more about cleaning up the balance sheet than investing for growth”.

But, he added: “What we’re seeing as a theme increasingly now is entrepreneurs looking for cash out – seeing an opportunity to de-risk their personal situation by bringing in institutional investors and taking advantage of the entrepreneur’s tax relief. They’re not trying to get out altogether – typically they want to sell a quarter to half of the business and take some cash out while still investing some to grow the business.”

Healey said some private equity firms were “nervous” about such opportunities, fearing the business owners lacked confidence. “But we find that as long as we do the due diligence, that’s no reason to be put off. Some of these opportunities can be quite successful.”

There was also a growing appetite for smaller deals, especially in situations where the businesses concerned had been unable to get bank funding.

“The banks have been sitting on their hands to a certain extent – though they’re starting to come back. That’s helped us with our £15m planned exit fund, which wouldn’t have done as well as it has, had the banks been operating as they were two or three years ago.”

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