April 6, 2017

Private equity investors are lining up to bid for New Zealand-based Mainland Poultry, whose business includes Zeagold Foods, New Zealand’s largest egg producer, and MainFeeds.

Archer Capital, CHAMP, Bain Capital, and Australia’s largest private equity firm Pacific Equity Partners are all reportedly among the field of bidders for the company that could be worth upwards of $400 million, reports The Australian. The New Zealand Herald reports that the list of PE firms that have advanced to the second stage of due diligence, before binding bids take place at the end of the month, includes Navis Capital, Adamanten Capital, Pacific Equity Partners, Crescent Capital, and CHAMP Private Equity.

Founded in 1997 and headquartered in Dunedin, Mainland Poultry is a vertically integrated business that manufactures lines of various compound animal feeds and animal health products through its MainFeeds unit. It provides New Zealand with one third of its eggs, including barn-laid, vegetarian, and organic eggs, as well as processed eggs, and chilled, frozen, and dried egg mixes through its Zeagold Foods unit.

Mainland’s current shareholders include Michael Guthrie, who holds a 76.6 percent stake; Murray Valentine who holds an 18 percent stake; and the Winmill family, which owns a 5.3 percent stake, and retained ANZ Bank in February as an advisor regarding options open to the company and as a manager of the eventual sale.

At the time, Mainland Poultry founding partner and managing director, Guthrie noted that the shareholders “may want to have a pathway to liquidity,” according to MSN.

Capex Required

Despite Mainland having multiple qualities that are attractive to private equity, including the fact that it has a strong brand presence and dominates its respective market, it would not be surprising if multiple players bow out given the expected capex requirement of NZ$60 million associated with the deal.

Due to the passing of the Animal Welfare Layer Hen Code of Welfare 2012, farmers are required to comply with the phasing out of battery cages used in egg production in favor of free-range or colony cage systems. Under the new regulations, new battery cages are not allowed to be installed, 45 percent of existing battery cages must be phased out of use by 2018, and completely phased out by 2022 – at which point, any existing equipment installed prior to the year 2000 must be replaced.

The company currently bridges both sides of egg production – controlling Woodlands, the country’s largest free-range farm, and its newest free-range operation at Waianakarua, but it also still has a sizeable caged operation, leaving prospective private equity bidders uncertain in how to approach.

Frontrunner

PEP, one of the frontrunners for Mainland, has successfully closed a string of capital commitments along the food value chain.

Most recently in January of this year, it was announced that PEP agreed to acquire Allied Mills, Australia’s largest flour supplier, from joint venture partners GrainCorp and Cargill.

Under the terms of the deal, GrainCorp agreed to the sale of its 60 percent stake in Allied Mills Australia Pty Ltd for a pre-tax and pre-transaction cost consideration of A$190 million. GrainCorp also said that Cargill had agreed to sell its 40 percent stake in Allied to PEP – and based on the GrainCorp deal, Cargill’s consideration would be A$127 million, for a total deal consideration of A$317 million.

In addition to the A$190 consideration, GrainCorp also will receive $35 million of franking credits under the terms of the transaction.

In June of last year, PEP acquired Victoria-based Patties Foods, maker of Mamma’s and Four ‘N Twenty pies, for $232 million in cash. Later, in November of the same year, Patties went on to acquire New Zealand-based Leader Foods – a food group with turnover in excess of $60 million, and which will provide significant synergies as its integration with Patties creates a pan-Oceania food group spanning Australia and New Zealand that is well-positioned to capitalize upon demand from Asian markets.

Additionally, in February of last year, PEP acquired Manuka Health NZ – a honey-based food and healthcare company with sales in 50 countries for $110 million; and in early 2015, the firm bought Kerry Pinnacle, the local arm of the British bakery goods business, Kerry Group, which supplies 3,500 supermarkets and bakery customers with muffins, cakes, donuts, profiteroles, frozen baked goods, ingredients and fillings for A$250 million (US$193 million).

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com.