Hain Celestial acquisition of Daniels

Hain Celestial, the US food maker, is hoping its acquisition of UK chilled foods firm Daniels Group will galvanise its existing business on this side of the Atlantic. The company sees the deal benefiting its operations in Europe and in the US but it is in the UK where it is most likely to be hoping for the greatest impact.

No-one can say Hain Celestial does not possess perseverance.

It has been five years since Hain Celestial entered the UK and, although the US company made a profit in its first year in the country, it has since seen its local business move into the red and is waiting for it to break even once again.

After a challenging few years, Hain Celestial's UK business evolved into being centred around supplying sandwiches to foodservice and retail customers, private-label frozen desserts and frozen meat-free both under the Linda McCartney brand and own label.

However, with the business still waiting to move back into the black, some industry watchers were asking what the future held for Hain Celestial in the UK. Last summer, just-food spoke to Peter McPhillips, then executive chairman of Hain Celestial's operations in Europe, and he was optimistic about the company's future in the UK and even hinted acquisitions were in the pipeline.

McPhillips has since moved on but, this week, Hain Celestial did make an acquisition in the UK and the second biggest in the company's history when it bought Daniels Grroup for around US$230m.

Daniels Group has spent nine years under the ownership of companies from Singapore. It was bought from foodservice group SATS, which two years ago acquired previous owner Singapore Food Industries. Daniels' brands include New Covent Garden soup and Johnsons Juice Co. soft drinks and the business also supplies fresh fruit, chilled ready meals and puddings to UK retailers.

Speaking to analysts on Tuesday after the acquisition was announced, Hain Celestial president and CEO Irwin Simon said the company had been looking at "multiple" M&A opportunities in the UK but had found some were focused on single categories, were not in the faster-growing categories and did not fit their ambition to focus on health and wellness.

However, Simon indicated that current financial conditions made this an opportune time to buy Daniels. "It's a great time to buy businesses. We would never have paid the price and multiple that we paid for this today two and three years ago and when the market gets better. Value played a big part in this also."

Quite reasonably, Simon was asked if the Daniels deal was done to solve Hain Celestial's problems in the UK. Simon said the company was making progress in the UK but acknowledged it needed to get bigger.

"The current problem in the UK has been on its way to being solved and it's on its way to break-even," Simon said. "The problem was - breaking even may have been one part of it - we had infrastructure in place that was too large for a GBP55m business. You're kind of fish or fowl there, you're not important to the retailers. My philosophy was you either sell and get out or you get bigger."

Simon said the deal would create a "powerhouse" in the fresh and frozen natural sector in the UK. The deal, he said, will diversify Hain Celestial's UK business into a number of new categories and give it more retail customers.

He also said Daniels would give Hain Celestial a presence in the UK's "fastest-growing category" - chilled foods - and strengthen its position in the face of the country's retailers. "If you walk into a Tesco and say you're part of the Daniels Group, they're not going to say 'Who?' anymore," Simon said, perhaps shedding some light onto the company's problems in the UK. One statistic demonstrates just how the deal will increase Hain's UK business. The company's current turnover in the UK is GBP55m. The annual sales of one Daniels brand - New Covent Garden soup - stand at just over GBP56m.

Industry watchers in the UK believe the Daniels acquisition will benefit Hain Celestial. "Hain Celestial is bolting on strong brands that complement its current offering," says Trefor Griffith, head of food and beverage at industry consultants and accountants Grant Thornton.

While Simon outlined the benefits of diversification and greater clout when dealing with UK retailers, he emphasised Daniels' brands and the position in the UK market. "We're in categories that are growing," he said. "The focus here is not just on any type of meals or any fresh foods, it's the premium end, the natural end."

Listing Daniels' businesses, Simon started with New Covent Garden soup. The company is perhaps best known for New Covent Garden but the brand is going through a challenging spell. According to data from SymphonyIRI, sales of New Covent Garden fell 2% in the year to 1 October to GBP56.6m. Volumes fell 3% over the period. In August, Daniels moved to revitalise the brand with a relaunch but its premium price tag can put off the UK's cash-strapped consumers looking for value.

New Covent Garden is also facing competition from retailers either launching their own fresh soups or relaunching their own ranges. Earlier this month, Tesco unveiled its New York Soup Co. range of chilled soups, its latest so-called "venture brand", an own-label product not bearing the Tesco name. The soups are made by own-label supplier Bakkavor. Morrisons, meanwhile, relaunched its own-label chilled soup range when it revamped one of its private-label portfolios as M Kitchen.

Griffith acknowledges the brand has under-performed but insisted it can thrive under new owners. "New Covent Garden soup is not performing as well as it once was. However, it's still a well-respected brand and could be stretched further if focused on," he says.

Hain Celestial has a challenge on its hands with New Covent Garden but Simon outlined other opportunities in the UK. He said there was a "tremendous opportunity" for Daniels' chilled meals business to help take the US company's Linda McCartney frozen meat-free brand into the chilled aisle and he also pointed to a "big opportunity" in children's meals, which he said UK retailers were demanding. Hain Celestial's sandwich business Daily Bread does not supply any of Daniels' retail customers and Simon claimed the acquisition could help expand that part of the US company.

And Simon also saw an opportunity to take some of Daniels' product knowledge into the US market. "We would look to bring some fresh soups into the US. The canned soup category is going through some challenges and if we can get the distribution it's a big opportunity," he said.

Hain Celestial could also look to strengthen the presence of some of Daniels' brands in Europe, he said. The US company has continued to build its operations in Europe this year with the acquisitions of French organic firm Danival and Norwegian cracker maker GG UniqueFiber.

"Daniels sells a little bit of product in France and the Benelux. Our sales group could roll out the Daniels products throughout Europe and there are really some good opportunities for us," he said.

The deal, then, appears to present a lot of opportunities for Hain Celestial and, of course, some challenges along the way. After five eventful years in the UK, Hain Celestial is preparing to roll up its sleeves and work on the next half-decade in the market.

[Source]