BC Partners in early December acquired Ross Breeders, one of the world’s leading poultry breeders, from Hillsdown Holdings in a GBP100 million (ecu 142 million) buyout. Ross, which claims almost a quarter of the world market for broiler breeding stock, is the clear market leader in the UK, Europe and Latin America and has a strong position in the US market. The business, which is headquartered in Scotland and operates through three main subsidiaries in the UK, the US and Germany, has sales of around GBP75 million and, according to BC Partners director Simon Palley, enjoys a high level of profitability.
The production of breeding stock is a critical part of the poultry production cycle. Ross, which counts expertise in research and development and technical support among its key strengths, has used advanced technology to develop a selection programme that has enabled the company to build a portfolio of pure stock lines; these strains can be manipulated to allow the company to supply breeding stock with the specific characteristics demanded by each major market or customer. The company has developed feed-efficient, fast growing stock with a high meat yield; the feed required to produce 1kg of breast meet has halved since 1976, and further significant improvements are expected within the next decade.
Customers in Ross’s home markets typically acquire parent stock as day -old chicks that begin breeding at 20 weeks and typically continue laying until 60 weeks, by which time each chicken will have produced around 120 eggs. Ross also supplies grandparent stock for producers further afield. Because of the effect of inbreeding on specialised strains of poultry, producers need to restock regularly with new generations of parent stock.
BC Partners has not disclosed full details of the deal structure. The firm is supplying all the institutional equity component from the ecu 1 billion BC European Capital VI fund, while Royal Bank of Scotland arranged debt for the deal, including a warrant-bearing mezzanine tranche that accounted for approximately 10% of the total funding.
The Ross buyout is the second completed from BC Partners’ sixth fund, which has now deployed approximately 15% of its capital.
Simon Palley said BC Partners first came to understand Ross’s strengths while the private equity house was engaged on the ground-breaking buyout of the Nutreco international animal feed business in 1994.
As a business with a significant world market share and a sustainable competitive position, Ross in many ways typifies BC Partners’ ideal target. The global market for chicken meat, which is currently growing at around 5% a year because of population growth, a trend to choose white meats in preference to red and a decline in the relative price of poultry, offers substantial opportunities for further growth.
The transaction is also notable because it marked the first time in five years that BC Partners has won a mainstream auction. This may reflect the fact that houses that were previously paying very high multiples can no longer do so, thanks to increased caution on the part of debt suppliers, rather than any fundamental change in BC Partners’ own pricing policy.