First independent investment pays off for Montagu

Montagu Private Equity has made more than four times its money by selling Marlow Foods, the owner of the Quorn brand of meat-alternative products. The result is timely because the company is in the market to raise a circa €2bn buyout fund, which follows on from its last outing in 2001.

Premier Foods, the UK-listed chilled and convenience foods maker, has bought Marlow on an enterprise value of £172m (US$313.1m), including £45m of debt. Premier is paying for Marlow by refinancing £580m in debt, which was put in place in August 2004 at its flotation, and by adding a further £200m to its facilities. JP Morgan was the sole mandated and lead arranger on the debt, but Premier is understood to be working with several lenders this time round.

Marlow was bought for £70m in March 2003 and was Montagu’s first investment after spinning out of HSBC Bank. Montagu’s Manchester team, which includes Simon Pooler and Anthony Greensmith, is understood to have made about a 4.5 times return on its investment.

Premier, which was advised by the broking teams at ABN AMRO and Merrill Lynch and lawyers Weil Gotshal & Manges, is understood to have approached Montagu ahead of the sale. Montagu was advised by Rothschild and lawyers Eversheds.

There were expressions of interest from other financial and trade buyers, but Premier won the asset on price grounds. It paid about 11 times Marlow’s 2004 earnings before interest, tax, depreciation and amortisation of £15.6m. In the year to December 31, Marlow had sales of £79m and profit before tax of £4.6m. The company had been growing by more than 7% per year, Premier said. Nick Hughes will remain chief executive of Marlow, which will offer some procurement savings but will be kept as a separate business unit.

Quorn, which was launched in 1994, has more than 60% of the £155m UK meat-alternative sector. The UK accounts for 75% of Quorn’s sales, with most of the remainder stemming from Continental Europe. Premier said it hoped to expand Quorn in the UK in particular, for example, through increasing the range of ready meals that incorporate the product.

Robert Lawson, director of mergers and acquisitions at Premier, however, denied that a lawsuit in the US over alleged allergic reactions to the fungi-based Quorn products was a threat. “The Quorn product is incredibly safe and healthy. The US lawsuit is spurious and the damages sought are minimal,” he said.

Hicks Muse (Europe) – which has now changed its name to Lion Capital – exited Premier through a series of flotations last year.

The UK exit market has reached new records for both the number and value of realisations in 2004, according to the Centre for Management Buy-Out Research (CMBOR). There were 317 exits last year, an increase of more than 25% in comparison with 2003. Value increased to £18.2bn, more than double the £8.8bn total of the previous year and well ahead of the £10.8bn record set in 2002.