The race for KP Snacks: who has the will and the cash?

Its brands - including McCoy’s, Hula Hoops, KP Nuts, Twiglets and Skips - are household names. And the list of suitors is both exotic and familiar, reportedly ranging from Russian oligarchs to Sir Terry Leahy.

So, with the first round of bids for United Biscuits’ salty snacks arm officially closing on Tuesday this week, who are the main runners and riders for the newly-formed KP Snacks? How much will they have to pay? And what are the opportunities and challenges the new owners will face?

United Biscuits, and its private equity owners Blackstone and PAI, are keeping tight-lipped about the process, but having exhausted all other options to sell the group as a giant entity, a break-up of the business was first signalled with the appointment of Credit Suisse in May.

Even before the appointment, last month, of Nick Bunker - who successfully oversaw the integration of Cadbury as Kraft’s president for UK and Ireland - to steer the company through the choppy waters of a spin-off, ‘teaser letters’ had already been sent out to six parties in August by Credit Suisse.

Rumoured recipients of these letters are numerous, and can be split into two camps, with fmcg giants competing against a long list of suspects from the PE sector - take your pick from the likes of KKR, Permira, Warburg Pincus, Clayton Dubilier & Rice, Lion Capital, TDR, CapVest and Pamplona - who have all been linked with a bid for the business.

KP Snacks is clearly highly prized, with a rumoured price tag of between £450m and 520m thanks to its estimated 17% share (worth £340m at retail) of the UK’s £2bn savoury snacks market, its healthy growth rate of 6%, and its positioning.

As a spokesman for one leading UK crisp manufacturer points out, “crisps, snacks and nuts is a hugely growing sector at the moment and we’re talking about some great brands here like Hula Hoops that have enormous potential. I’m not surprised people are circling the business and I wouldn’t be shocked if it sells for a huge figure.”

For rival private equity bidders, there is no shortage of money in the coffers, but there is also a belief that market conditions will depress prices, says one City analyst. “This is a great opportunity for a private equity company to buy at a relatively low price and then sell high when conditions improve. It is a strong set of brands and makes a good showing in the UK. The added benefit of some attractive international markets is also appealing.”

Mintel’s global food and drink analyst Marcia Mogelonsky agrees that KP’s openings in overseas markets is of vital importance to buyers. “Of interest to a prospective buyer would be the opportunity to gain shelf real estate in countries such as Nigeria and India, where the snacks market is opening up,” she says.

But offering access to existing global supply chains also makes KP Snacks tempting as a “bolt-on acquisition” for several global fmcg giants - who also have balance sheets to support such a move - and puts private equity bidders at a disadvantage, she adds, as it is a challenging time to build a snacks business from the ground up.

Fmcg favourites

If an acquisition by Kraft, or its European spinoff, Mondelez, is the most intriguing corporate prospect given Bunker’s connections, the acquisition is also sure to appeal to a number of other international players. And Kraft is not among the favourites. The main runners and riders are:

• Intersnack: a German-owned business, which already has a UK division, was reported to have appointed Goldman Sachs as an advisor on a potential bid in September. United Biscuits’ salty snack portfolio would provide a perfect fit for Intersnack’s existing snacking brands, such as Penn State pretzels.
• Kellogg’s: Following its acquisition of Pringles from Procter & Gamble earlier this year, and the launch of Special K crisps last month, Kellogg’s is emerging as a serious player in the snacking category. KP’s portfolio would allow Kellogg’s to scale up its snacks operation in one fell swoop and make it a genuine global player in the snacking arena.
• Wahaha: Initially considered one of the frontrunners for the business, comments made by the Chinese food group chairman’s to the China Securities Journal in August, suggest that the company has cooled on the idea. This could of course just be an elaborate bluff: many analysts believe this is a gilt-edged opportunity for the company to enrich its product portfolio, expand its market overseas and enhance its global brand image around the world.

Private equity

The other possibility put forward by analysts is a PE house buying the division. And the appointment of Bunker would certainly enable this, as he could nurture it for a few years and then, when the economy improves, turn it over to the likes of Wahaha, or Kellogg’s, for a profit bigger than can be realised in the current climate.

The three key favourites on this side are as follows:

• Permira: Among PE houses Permira is the name that’s been most strongly linked with a bid for KP Snacks to date. The company has a history of food and beverage investment, including frozen food group Iglo, and has been slowly shifting its focus from European brands to a more global outlook.
• Clayton Dubilier & Rice: When Clayton Dubilier & Rice was linked with a bid for the business by Sky News it certainly raised a few eyebrows, thanks to the added spice of CD&R senior adviser Sir Terry Leahy reportedly ‘leading’ the process, alongside former Unilever food head Vindi Banga. On paper it looks like the perfect fit, but so far Sir Terry and CD&R has refused to comment on the matter.
• Pamplona: This Russian-British PE house, backed by oligarch Mikhail Fridman, emerged as a potential frontrunner last weekend, when the Sunday Telegraph reported that the company was due to table a bid for KP Snacks. The fund launched in 2005 and has a cross-section of industries in its portfolio, but it has yet to dip its toe into the food sector.