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Branston deal a reminder of what a pickle Premier Foods has got itself into

October 31, 2012

Old food brands don’t die, they just get traded away. The latest to fall under the auctioneer’s hammer is Branston – sweet pickle, but also ketchup, mayonnaise and salad cream – which has been knocked down to Japanese relishes specialist Mizkan for £92.5m. It’s the second deal Premier Foods has done with Mizkan. Earlier this year, Premier sold its Haywards pickles business and Sarson’s vinegar brand to the privately-owned Japanese company for £41m.

Not so long ago, Premier was being billed as Britain’s biggest (indigenous) food company. That reputation has long gone, as the company struggles to placate an increasingly disenchanted City with a seemingly endless series of disposals aimed at tackling massive over-leverage (it borrowed far too much in the good years) and a burgeoning pension liability.

The finance boys, not to mention Premier’s new(ish) broom chief executive Michael Clarke (formerly Kraft Food Euro chief), are so chuffed at being ahead of schedule in reducing the debt mountain that they seem to have forgotten what the company is supposed to be about.

These days, the only media ripple Premier manages to make is when it announces yet another fire-sale. Last December it was Brookes Avana, its loss-making chilled food business, sold for £30m. Earlier in 2011, it canning business went to Princes (now part of Mitsubishi) for £182m, and before that, the meat-free business – commonly known as Quorn – for £205m.

In fact, so many brands have disappeared from the portfolio in the past few years that people must wonder what – if anything apart from trying to make money – the Premier umbrella brand stands for these days. Remember Gale’s Honey? Robertson’s Jam? Hartley’s? Chiver’s? Typhoo Tea? All once UK household names – now long since divested.

And more disposals are on the way. Bird’s Custard, for example. And even – if the price is right – the Premier bread business; that’s Hovis to you and me. Which, if I remember rightly, was the jewel in the crown when Premier acquired the old Ranks Hovis McDougall business back in 2007.

The talk in the boardroom is of scaling back to the unassailable fortress of Premier’s so-called “Power Brands”, of which Hovis is currently one (yes, that unassailable). The others are Mr Kipling, Ambrosia, Sharwood’s, Loyd Grossman, Oxo, Bisto, and Batchelors.

To the untutored eye, there’s nothing very “unassailable” about any of these, either. The Loyd Grossman business is unlikely to much outlive the celebrity of its founder. As for Bisto, Batchelors, Mr Kipling and Ambrosia, they are in – or moving towards – the brand museum category: famous items in the pantry a generation ago, but now confined to a dubious ranking on the health traffic light scheme featuring in your local supermarket.

Unilever and the likes of Néstlé, Kraft, Campbell’s and RHM saw the dismal future awaiting such brands long ago, which is why they first cut off marketing support and then disposed of them. Scavenging such brands may have made sense while borrowing costs were no object; and while the supermarkets were prepared to offer them a reasonable amount of shelf space. But they aren’t any more.

For these reasons, a big question mark hangs over Premier, its “Power Brands”, and the continuing viability of its business model.

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Omnicom close to $100m deal with Communispace

December 13, 2010

Omnicom is poised to clinch a $100m deal to acquire eCRM and research company Communispace, according to sources in a position to know.

Communispace specialises in creating communities online – it claims to have over 350 in operation. It can mine and shape sophisticated customer database material for large, blue-chip clients – which often find difficulty in establishing the actionable status of “chatter” in the social media sphere. Communispace clients include Coca-Cola, Campbells, Colgate, Hasbro, Heinz, HP, Microsoft, Pepsi and Unilever.

Communispace was set up in 1999 by current president and chief executive officer Diane Hessan, a Harvard MBA. It is based near Boston, Massachusetts, but has global reach, with offices in London; Genoa, Italy; and in the Asia Pacific region, operating out of Sydney, Australia. Maria Rapp, a founder of Communispace, is managing director of European operations.

Communispace is 43% owned by California-based Dominion Ventures Inc. A further 13% is in the hands of Boston-based Women’s Growth Capital Fund. Senior staff appear to own the rest.

It is easy to see why Omnicom would be interested in buying such a company, but not why it should be paying so high a price –  if financial data that has come my way is any guide. Communispace’s 2010 gross revenue is expected to be $47m and profit before tax, $6.3m: which suggests an already high price/earnings multiple of about 16. Additionally, however, just under 30% of that profit-before-tax figure is expected to be siphoned into an options bonus scheme for senior Communispace management, which would effectively make the multiple soar well into the 20s. It has rightly been pointed out that Omnicom is not normally known for its financial extravagance. Nor has it been particularly active on the acquisitions front recently. There must be a pretty important piece of mutual business at stake to justify paying Communispace’s $100m asking price.


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