San Francisco-based Fremont Partners took a bite out of Tyson Foods with its acquisition of the company’s Specialty Brands unit, which produces, processes and markets frozen food products. The firm partnered with Specialty Brands management in acquiring the division and indicated that Tyson Foods retained a minority interest in the new company.
Fremont Managing Director Mark Williamson said the deal fits within the firm’s typical investment range of $75 million to $1 billion, and added that the transaction was divided between a “fair amount of equity” and senior debt, which was supplied by Harris Bank. The exact terms of the deal were not disclosed.
Specialty Brands, which employs a workforce of approximately 1,650 workers, consists of two divisions – its food service operations and its branded consumer business – and has six manufacturing sites throughout the U.S. The company was originally acquired by Tyson Foods as part of its $3.2 billion purchase of IBP last year and industry analysts have valued the unit at around $100 million to $200 million, according to Meatnews.com. Williamson notes that the food-service operations is a leader in most frozen appetizer markets and also stressed that the branded consumer side of the business is considerably important to the investment, as it provides higher margins and additional strategic value.
Some of the company’s more notable brands include Jose Ole, Fred’s for Starters, Rotanelli, Butcher Boy and Posada. Williamson identifies Jose Ole as having a huge potential upside, noting that IBP and Tyson have recently put in more than $50 million into building the brand. He states that Fremont should be able to capitalize on their investment, which the firm feels has not yet been fully realized.
Specialty Brands’ top-line business has grown in the double-digits consistently for the past few years, and during 2001 the company logged revenues of $300 million. Fremont expects Specialty Brands to continue to achieve very strong growth and is looking for that growth to occur organically. However, Williamson did not rule out any acquisitions for the company further down the line, but he did affirm that Fremont would not be focusing on add-on deals as a major part of its investment.
Fremont was attracted to Specialty Brands due to the “downside protection” the investment presents, with Williamson citing the company’s strong management, quality brands and leading market positions. The firm sees potential in Specialty Brands’ consumer business, new opportunities in food service and the launch of additional products.
The firm has been active in the food industry of late, announcing in August plans to acquire Nellson Neutraceutical, a manufacturer of nutritional foods. However, Williamson notes that the firm is not specifically targeting companies in the sector, but rather looking for proven and sustainable business models with a competitive position in its given industry and a strong management team already in place.
The acquisition was part of Fremont’s $920 million Fremont Partners III private equity fund, which targets middle-market investment opportunities. The fund, which closed in February of this year, has used roughly 10% to 20% so far on completed acquisitions, including the purchase of Vantage Building Products Corp. in April.