What the Newlat acquisition means for Symington’s

Italy’s Newlat took its first foray into the UK this week, snapping up Symington’s for £53m from its PE owner ICG. 

So who is Newlat and what does the deal mean for the Naked and Chicken Tonight owner?

Milan-listed dairy and pasta group Newlat was established in 2004 and has grown through a buy-and-build strategy domestically and in Germany.

Best known for producing the Buitoni pasta brand under licence from Nestlé, the group stepped up its international ambitions as part of its €200m Milan IPO in October 2019, where it outlined plans to grow sales to €1bn across Europe within two years, driven by acquisitions.

It further boosted its coffers with a €200m bond sale earlier this year and has reiterated its aim to become a “major player across grocery” in Italy, Germany and the UK.

As well as identifying the UK as a key market, Newlat explored buying bakery brand Hovis late last year, before it was eventually sold to private equity group Endless. So it is no surprise to see it return to the UK branded grocery sector with Symington’s after PE owner ICG put the company up for sale earlier in the year.

Newlat chairman Angelo Mastrolia told The Grocer access to UK supermarkets was a key priority. “Having a direct link to UK retailers, without the need to go through distributors, represents an opportunity to sell Newlat products and brands in the country, especially post-Brexit,” he says.

One dealmaker suggests Symington’s fits the profile because it “gives Newlat UK production, multiple routes to market and multiple categories, which allows them to give their products a harder push in the UK.”

It also potentially fits the profile of potential acquisitions outlined to Newlat investors earlier this year as part of its bond offer – with it targeting mid-cap European food and beverage brands (with revenues up to €350m), including those with “turnaround potential”, “room for cost efficiencies” or “underperforming targets”.

Another dealmaking source notes its pursuit of Symington’s and Hovis shows it is not in the market for paying big premiums for fast growing, on-trend assets.

So where is Symington’s up to in terms of this profile? In terms of a turnaround it is fair to say it is a work in progress: since it fell to a £6m loss in 2016 amid a raft of delistings in its cooking sauces portfolio, it has shifted the business away from contract manufacturing, after exiting agreements to produce Ainsley Harriott, Golden Wonder and Aunt Bessie’s products.

By concentrating on growth of its own brands – notably its £21m Naked noodles and £14m Mugshot snacking brands – it moved back into profitable growth last year, with sales to August 2020 increasing 4.2% to £114m and a 17.5% uplift in EBITDA to £9.6m. The Leeds-based group has also had international success, particularly with its noodles brands in the US, where it signed a distribution agreement with Walmart.

Despite the turnaround Newlat seems to have grabbed itself a bit of a bargain too: City sources had initially suggested a deal for Symington’s could be worth between £80m-£100m. Newlat announced to the stock market it had struck the deal for £53m (on a cash free, debt free enterprise value basis) which means ICG will be nursing a loss as measured against the original purchase price of £72m buyout in 2012.

“The price is not what ICG would have wanted,” says one City source. “It has been a tough journey, but they’ve actually done well to get it where it is compared to where it was. Ultimately a PE owner was perhaps the wrong home for it.”

Synergies

For both businesses, the deal brings synergies too.

Mastrolia confirms Newlat and Symington’s will cross-sell their products into each other’s markets given their strong relationships with retailers. “The Symington’s products are extremely interesting for the German market,” he says, adding: “The instant noodle market in Italy is relatively new and having an Italian company supply new and innovative products could be well appreciated by Italian retailers.”

Likewise, Newlat brands could be sold in the UK through Symington’s network, such as its premium pasta brand Delverde or its significant stable of mascarpone and babyfoods.

Newlat will also use Symington’s to bring manufacturing of its German Birkel Minuto noodles range in-house, and will supply the UK company with 6,000 tonnes of pasta, currently sourced from third parties. Newlat also suggested the optimisation of production capacity could leave one of the Symington’s production plants free to become a pure pasta production plant.

Addleshaw Goddard partner Richard Hunt, who advised ICG and Symington’s management on the deal, adds: “Symington’s has a strong management team, which have turned the fortunes of the company around, and the combined synergies from the deal gives a strong base to expand across Europe and continue the good work done in the US.”

Trade ownership will also “give the management team more certainty and ability to plan and execute a longer-term strategy,” Hunt adds.

What next for Newlat?

Symington’s also gives Newlat a pathway into the US – “a relationship that could be further levered with the offer of Newlat Food”, according to an investor presentation on the deal.

For both businesses, the synergies are unlikely to end here, since Newlat, with cash still burning a hole in its pocket,  remains on the M&A trail. “We have an ambitious M&A strategy and are currently looking to further expand in the UK and more generally in Europe,” Mastrolia says.

“If the opportunity comes up, we will acquire other companies in the UK.”

That could mean further bolt-on acquisitions to be integrated into its Symington’s beachhead in the country. Notably there remains significant opportunity to grow into the core snacking segments in the UK and to capture market share from workers returning to offices, which could be augmented by the addition of pure-play healthy snacking brands.