January 31, 2017

Pacific Equity Partners (PEP) has agreed to acquire Allied Mills, Australia’s largest flour supplier, from joint venture partners, GrainCorp and Cargill.

GrainCorp announced that it 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 has 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.

“This transaction is consistent with our strategy to proactively manage our portfolio to improve returns,” said Mark Palmquist, GrainCorp managing director and CEO, in a company statement. “The interest shown by PEP to acquire full control of Allied Mills provided us with an excellent opportunity to realise [sic] the value in Allied and create balance sheet flexibility for the future.”

GrainCorp and Cargill have owned Allied Mills since they acquired it for about $200 million in 2002 from Goodman Fielder – in a move that GrainCorp refers to on its website as “the first step of our diversification strategy.” The addition of Allied Mills launched GrainCorp into Australia’s bakery products and milling space, where the group has grown to rank as the country’s top supplier of edible flours and value-added food products. Today, Allied Mills’ assets range across Australia, including mills in Brisbane, Queensland, Picton, and Tamworth in New South Wales; Ballarat and Kensington in Victoria; and Adelaide, South Australia, and North Freemantle in West Australia.

Since 2002, GrainCorp’s share of Allied Mills has grown to reach a valuation of $178 million as of September 2016.

Founded in 1998, PEP is the largest private equity manager in Australasia with approximately A$3.5 billion under management. Funds managed by the firm have made more than 26 operating company investments, and have made more than 90 bolt-on acquisitions over the years, including the acquisition of Australia’s Patties Foods in July of last year for A$232 million; the acquisition of Kerry Pinnacle, the local arm of the British bakery goods business Kerry Group Plc for A$250 million in March 2015; the acquisition of Griffin’s, New Zealand’s leading snack and biscuit company, in 2006, which PEP later sold to Universal Robina Corp. for NZ$700 million in 2014; and the acquisition of food and healthcare company Manuka Health New Zealand in 2015.

The addition of Allied Mills, which processes 800,000 tons of wheat and specialty grain per year to PEP’s portfolio will create synergies with Pinnacle, which produces and distributes unbaked and finished cakes, pastries, biscuits, muffins, and doughnuts as well as bakery ingredients, according to AFR.

“This is rare combination of complementary businesses operating in truly adjacent categories,” said PEP Managing Director Tony Duthie in a statement.

Following the closing of the deal, GrainCorp is expected to continue to provide grain, storage, and transportation to Allied Mills, but the greater benefit of the sale of the non-core asset is the generation of capital for other opportunities.

“Over a number of years GrainCorp has been investing in a series of capital projects and as these projects are completing, our focus has been on maintaining a disciplined approach to capital management and portfolio optimisation [sic],” said Alistair Bell, CFO, Grain Corp. “This sale of an equity investment in Allied Mills creates an opportunity to realise [sic] value, reduce gearing and improve our returns. The funds of $190 million will provide flexibility as we approach our peak gearing and remain available for other redeployment opportunities.”

Cargill is viewing the deal with a similarly pragmatic eye, noting that although Cargill remains committed to Australia’s agricultural and food sectors, the time was right to divest Allied Mills.

“We reached the conclusion that as the strategic direction of Allied Mills is adjusting to changing market conditions, ownership of this business is no longer a strategic fit for Cargill Australia’s grain, oilseed and supply-chain business,” said Peter McBride, director of corporate affairs with Cargill Australia, reports Grain Central.

Credit Suisse acted as financial advisor to GrainCorp and Cargill and the closing of the acquisition of Allied Mills by PEP remains subject to approval by Australian regulatory bodies, including the Australian Competition and Consumer Commission.

-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