Sunday, November 28, 2010

Industry Thoughts | Del Monte and the Reunions

I'm already missing vacation. The Del Monte deal came in while I was museum hopping in Washington DC; I hope that you all had a restful and great Thanksgiving!

What a busy Thanksgiving weekend it's been!

First you have the J. Crew deal with TPG and Leonard Green for $3 billion, now you have KKR's, Vestar Capital's, and Centerview's deal to buy Del Monte Foods.

Now, as some publications have mentioned, this deal does not award the consortium with all the Del Monte divisions (such as the fresh fruits sector). However, the most powerful asset in the firm's arsenal IS included: the Pet Food division.
As DealBook explains, half of the company's revenue comes from its pet food division. 65% of EBITDA comes from the division of well. Strong and stable pet foods businesses are tough to come by (the most recent one was Irving Place Capital's acquisition of Pet Supplies Plus, and you also have KKR buying the British company Pets At Home), so this is a great move for the consortium. However, one other key piece in this transaction is that the alliance reunites executives with firms:

  • David Hooper at Centerview is an ex-Vestar Capital Partners guy; he is the top executive at Centerview with a private equity background
  • Many members of Centerview worked at Nabisco, which KKR used to own
  • Jim Kilts, the head of Centerview and former CEO of Gilette, also was in a high command at Nabisco (which, again, KKR owned)
  • KKR used to own Del Monte but spun it off after it acquired Nabisco
Private equity firms usually don't have an extensive amount of specific experience when it comes to their portfolio companies. However, with the powerful consumer goods experience amongst all 3 firms (and Centerview was probably getting itchy while sitting on a $500MM pile of cash for a while), it's in my opinion of the best deals done this decade.

Who's next? DealBook mentions a few firms like Smucker's and ConAgra, but one area I see getting busier that they mention are small private-label brands like Richlieu Foods (which Centerview bought from Brynwood Partners).
The valuation is amazing too (from DealBook):

Del Monte was trading at a low price-to-earnings ratio of under 10, was on track to realize $259.2 million in free cash flow for this year, and its pet food business, which featured brands like Meow Mix, was heavily undervalued.

The thing is, will we get another Del Monte-style deal? Not for a LONG time.

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