Firm: Permira Advisers Ltd
Sale Price: €1.5 billion
Return Multiple: 2.3x
Sometimes a buyout deal requires a sponsor to cut, to add on or to turn around. For Permira Advisers Ltd, its 2007 acquisition of the animal feed company Provimi called for it to prune and shape an existing business and give it a new form, incidentally earning the firm this year’s Buyouts Large Deal of the Year Award.
“The business had grown rapidly through a number of acquisitions around the world, but those acquisitions had never been integrated, and it wasn’t a coherent business,” said Charles Sherwood, a partner in the firm, a member of Permira’s board and of the investment committee.
Provimi also fit into a larger theme. Permira, a European buyout firm that invests globally, already had at least one food-related company in its portfolio—iglo Group, a European frozen foods company carved out of the consumer-products company Unilever that is best known for controlling the Birdseye brand in the U.K. It would go on to acquire two more: Arysta LifeScience, a Japanese maker of agrichemicals, such as fungicides and pesticides; and Netafim, an Israeli developer micro-irrigation technology, such as “smart drip” hoses that save water while increasing crop yields.
The firm’s investment thesis for the sector focused on the world’s expanding population, putting demand on resources, and especially in Provimi’s case, the need for efficiency in a fragmented animal-feed industry.
Provimi, founded in 1927 as a trading company for Dutch farmers, had been through a number of transitions, the latest as a holding company controlled by two other European buyout shops, CVC Capital Partners and PAI Partners.
CVC acquired Provimi in 2002 from the Italian conglomerate Montedison, as the British financial magazine The Business reported at the time. Under its ownership Provimi continued growing through acquisition, as it had been for years.
By the time Provimi returned to the market in 2006, the company was operating in a variety of businesses, including fish feed (aquaculture) and private label pet food (retail) that were not integrated with the core animal nutrition business.
“We had taken an interest in the food value chain,” said Philip Muelder, a partner at Permira. “This was a very interesting value creation proposition.”
The firm bought Provimi in April 2007 and set to work reshaping the company, with a goal to turn it into a pure-play animal nutrition company. One early priority was to take full ownership of the business. While the private owners controlled 74 percent of the stock, a minority of shares traded on the French bourse and a subsidiary had shares trading in Poland. (The firm did not achieve Provimi’s final delisting until 2009.)
Provimi’s CEO had 55 people reporting to him, Sherwood said. Permira streamlined the management team, retiring the CEO and promoting the COO to his job, bringing the number of direct reports down to seven, including three promoted internally, and four new hires.
The firm also rationalized the company’s internal operations. When Permira acquired it, Provimi’s various operating units were handling their own purchasing, cash management and R&D, Sherwood said. “None of those things were being optimized.”
Permira installed an SAP data management system for the entire company, centralized purchasing for common supplies, like vitamins, established tighter control of overhead and more efficient management of working capital, and optimized the company’s product offerings around the world.
Permira oversaw €300 million ($392 million) in divestitures at Provimi and exited 10 joint ventures, including one in California. At the same time, it cultivated a new business development team, oriented toward acquisitions. They traveled the world looking for the most attractive opportunities, Muelder said. “We wanted to Provimi to focus on faster growing emerging economies and businesses.”
Provimi’s home markets were in Europe and North America, Sherwood said. “The two big opportunities were in Latin America and Asia.”
Its two major add-ons were both in Latin America. In September 2008, Provimi bought Blovet, a producer of “premix” products in Colombia, it added Nassa, a Mexican producer of swine and shrimp feed. The company also had a deal lined up in Brazil at the time of exit, Muelder said.
In April 2008, Provimi agreed to sell its aqua fish feed operations to BioMar Holdings AS, a Danish specialist in the category, and it sold the pet food division last June to Advent International, using those proceeds to reduce debt.
The pet food sale came late in the ownership cycle, Sherwood said. “That required a turnaround. We wanted it to achieve its proper profit potential prior to selling the business.”
Permira received an overture for Provimi in 2010 from the American food processor Cargill Inc., which had lost out to CVC in 2002 and had looked at Provimi again in 2006. So the firm began preparing the company for sale, but the exit process took close to two years, Muelder said. The firm mounted a global road show for the remade company, concentrating on strategic buyers around the world, although some sovereign wealth funds and private equity firms also participated in the review.
In the end, the process came down to three finalists: Cargill, a Dutch consortium and a Chinese feed business. Permira completed the sale of Provimi to Cargill in November for €1.5 billion ($2.1 billion).
Cargill had looked at Provimi in 2007, but passed on its collection of assets, Sherwood said. “By 2010, the company had been transformed. Here was a pure play animal nutrition business with a coherent product offering, serving some of the fastest growing areas of the world. That was a must-have for Cargill.”
WHY THE FIRM WON
Clear investment thesis for the business
Strategic add-ons and divestitures
Disciplined exit process