United Biscuits to join Moy Park in Q4 listing as supplier IPO stampede looms

United Biscuits is preparing to float on the Stock Market before the end of the year, The Grocer can reveal.

Sources close to the company said an IPO was planned for “some point towards the back end of the year,” having received “a pretty good reaction” from the City.UB declined to comment.

UB’s strong stable of brands, which includes McVitie’s Hobnobs and Jaffa Cakes, and its growing international business are likely to be key selling points to the City. The company’s degree of specialisation - it only makes biscuits - would also appeal to investors, suggested one source.

UB’s plans for a Stock Market flotation come as poultry giant Moy Park is in the advanced stages of its own IPO, expected before the year-end.

City sources expect at least one further UK food company to float by the fourth quarter, with “another half a dozen or so” food IPOs potentially in the pipeline for early 2015 (see box).

After a dearth of food IPOs in the past decade there was “real pent-up investor appetite” for food businesses, said KPMG partner Chris Stott. “Food is a particularly attractive sector at the moment. People have to eat, so the demand story is there. The companies are typically well-run businesses that generate cash, security in the form of assets, plus, there’s real niche growth in certain areas, like indulgence, Health and exports.”

The strong performance of food companies like Greencore and generally strong IPO market conditions had created “renewed confidence in the ability to successfully prosecute food IPOs in the UK at attractive valuations, backed up by structural demand for more exposure to the sector from UK institutions,” added Akeel Sachak, MD and global head of consumer at Rothschild.

But while market sentiments were positive, not all food IPOs currently being prepared would come off - especially those involving companies much smaller than UB and Moy Park, warned another source. “We have a fluid market with cash - but I think the investment case has to be strong so these smaller players don’t become zombie stocks. It’s a bit about timing and a bit about who gets to market first.”

Thawing market

In the first half of the year, the London IPO market had its strongest six months since the financial crash. According to data from EY, the UK market saw 61 new listings in the six months to June, compared with 68 during the whole of 2013.

So the market is certainly back open for new listings – and, crucially, valuations for the listed food manufacturers have improved to such an extent that IPOs look attractive and achievable for a host of suppliers.

One City source noted: “Companies are looking at valuations on food companies in the market and they are clearly higher than the price strategic buyers would pay.”

“Investors are looking to diversify – there’s a bit of saturation, particularly around retail”

The source added potential buyers might pay eight to 10 times EBITDA for high-quality companies, but that premium pork supplier Cranswick, for example, was trading at a multiple of 12 times. Cranswick’s shares are up almost 12% year-to-date, while Greencore is around 20% up since January.

Food companies could benefit from a measure of rarity value too, as other than Cranswick, Greencore and Premier Foods there are few significant listed food manufacturers until the jump up to the huge multinationals.

“I absolutely understand why a fund manager wants a large food business in their portfolio,” said one market source. “They’re steady, well-understood, and a stable part of the listed market.”

A second City source added: “Investors are looking to diversify – there’s a bit of saturation, particularly around retail. There’s demand in the investor community for businesses with strong cash generation.”

Although there is wider pent-up investor demand for new listings, the tail end of the retail IPO flurry in the first half of the year suggests the market is becoming far more discerning about the quality of companies coming to market.

Clothing retailer Fat Face was forced to pull its IPO in May due to a lack of demand, while Card Factory and Game priced their offerings at the lower end of guidance in that period. Additionally, a number of the early seemingly successful floats, including AO World and Pets at Home, are trading well below their launch price.

“The IPO market is very binary – it’s either open or it’s closed,” said a City source. “If by October new issues are continuing to trade down, it could become very tough to get listings away.”