Private equity interest remains high: BC Partners is buying Galbani from Danone, and Hicks, Muse, Tate & Furst is the purchaser of a variety of ambient brands from Nestlé, adding the likes of Crosse & Blackwell, Branston and Sarson's to existing investments in the sector. With a number of big food and drink groups still looking to rationalise their portfolios to focus on top brands, there are plenty of investment opportunities for private equity investors. Finding a suitable exit route is always a key issue for any private equity investor and there are some signs that an Initial Public Offering (IPO) may be becoming a credible option again, with RHM (backed by Doughty Hanson) rumoured as one possible candidate. Legal & General Venture's sale of Young's Bluecrest to Cap-Vest (another private equity group) in March confirmed that secondary buy-outs are still viable alternatives to the trade sale route. Bridgepoint Capital has found two new owners for its Golden Wonder business, with Walkers acquiring Wotsits and the remainder going to The Snack Factory. Elsewhere, the market for healthy food and drinks has attracted a lot of publicity in the last couple of years, but there is still some debate over whether such brands are best owned by fmcg or pharmaceutical companies. Pharmaceutical groups may like the fact that research costs are usually lower than for their core products, but they also get lower margins, and in some cases lack the marketing expertise of the big fmcg groups. The fmcg firms, meanwhile, are attracted by the higher margins on functional foods, but have not perhaps been as successful with marketing these products as they might have liked. Novartis announced in February that it was putting its health and functional food division (whose brands include Ovaltine, Céréal slimming products and Isostar sports nutrition) up for sale. There are a number of other pharma companies with significant food and drink divisions, such as GlaxoSmithKline (which owns Lucozade, Ribena and Horlicks) and Pfizer (whose Adams confectionery division controls brands such as Trident, Dentyne and Bubblicious). If Novartis manages a successful sale of its non-core division, then this may prompt other pharmaceutical companies to re-examine their ownership of food or drink brands. The largest deal in Europe over the last two quarters was Barilla's purchase of Kamps, the German bakery group, unusual in that, although management eventually agreed to recommend the deal, the initial approach had been hostile and from a foreign company. Although not unheard of in Germany (witness Vodafone's buy of Mannesmann in 2000), such approaches are still rare. It was also the first real test of a new German takeover code adopted earlier this year and, although the way in which business is conducted there is unlikely to change overnight, these sort of steps may encourage other companies to look more closely at German targets. l Neil Sutton is head of Consumer Products, PricewaterhouseCoopers Corporate Finance. {{FEATURES }}

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