Filed under: Food Products
In Sept-95 Fenway Partners and Dartford Partnership LLC commenced a roll-up of frozen foods companies with the acquisition of the Van de Kamp’s frozen seafood business and certain frozen dessert product lines from The Pillsbury Company (owned by Grand Metropolitan plc – now Diageo plc) after its acquisition of Pet Incorporated. The purchase price of the Van de Kamp’s business amounted to US$190m and was subsequently renamed Van de Kamp’s, Inc. (‘VDK’). This implied the following multiples for the year ended 30-Jun-95: 127% of net sales (US$149.4m), 8.5x EBITDA (US$22.3m, 14.9% margin), 9.8x EBITA (US$19.3m, 12.9% margin), 16.4x net income (US$11.6m – before US$3.3m in goodwill amortization -, 7.8% margin).
The acquisition was financed by (i) an equity contribution of US$70m (65/35 debt to equity), (ii) senior subordinated notes in the amount of US$100m, and (iii) the borrowing by Van de Kamp’s, Inc. of US$32m under the senior secured bank facilities.
In May-96 VDK acquired from Campbell Soup Company the frozen seafood and frozen vegetable products lines of Mrs. Paul’s for a purchase price of US$73.2m (no details disclosed). In Jul-96 VDK acquired substantially all of the assets of the frozen food division of The Quaker Oats Company for approximately US$185.8m (113% of sales: US$164.3m in the year ended 29-Jun-96). No financial details were disclosed for these businesses.
In aggregate the three companies were acquired for US$451m and generated pro forma combined net sales of US$399.8m in the year ended 29-Jun-96 implying a purchase price multiple of 113% of net sales for the group.
In Feb-97 VDK sold its whipped topping product line – a part of the desserts business – for US$6.2m (47% of estimated sales of approximately US$13m). In May-98 the remainder of the desserts product line was sold to Mrs. Smith’s Bakeries, Inc., a subsidiary of Flowers, Inc. for US$26m (95% of estimated sales of approximately US$27m in the year ended 29-Jun-97).
On 1-Jul-98 VDK was merged into Aurora Foods Inc. (‘Aurora’) and the subsequently sold 14.5m shares of common stock at US$21 per share in a public offering valuing the equity at US$1.41bn. Including US$695m in net debt this valued the company at US$2.1bn. This implied the following multiples for the year ended 31-Dec-97: 240% of net sales (US$874m – pro forma adjusted -), 13.6x EBITDA (US$154.6m – pro forma -, 17.7% margin), 15.6x EBITA (US$134.6m – pro forma -, 15.4% margin).
In Feb-00 Aurora announced an investigation into its accounting practices related to understatement of trade promotions expense and overstatement of sales in 1998 and the first nine months of 1999, resulting in an overstatement of operating profit by US$38.3m and US$43.3m respectively. This led to the company defaulting on its senior secured debt and senior subordinated debt.
In Dec-03 the company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code to implement a financial restructuring and be merged with Pinnacle Foods Holding Foods Holding Corporation (‘PFHC’) * and renamed Pinnacle Foods Group, Inc. (‘PFGI’). This transaction was completed in Mar-04.
All outstanding shares of common and preferred stock were canceled and holders of subordinated notes were offered a choice either to elect to convert their subordinated debt claims into indirect interests of PFGI, or instead to receive a cash payment of US$0.462 for each dollar of their claims. All other creditors were paid in full and other claims against Aurora were unimpaired.
The total cost of the Aurora merger, including the repayment of existing debt and payment of transaction fees and expenses, was approximately US$952m. This implied the following multiples for the 12 months ending 30-Sep-03: 128% of sales (US$745m, 3.9x net tangible capital turn), 7.4x EBITDA (US$128.8m, 17.3%), 8.9x EBITA (US$106.5m, 14.3% margin), 5.0x net tangible capital employed (US$190m).
The Aurora merger was financed with: (i) US$201m gross proceeds of the sale of senior subordinated notes, (ii) a US$425m term loan, (iii) US$11.5m of drawings under a revolving credit facility, (iv) existing cash on the Aurora balance sheet and (v) a cash equity investment of US$84.4m from the Sponsors.
* PFHC was acquired by J.P. Morgan Partners, LLC (‘JPMP’), J.W. Childs Associates, L.P. (‘JWC’), and CDM Investor Group, LLC in Nov-03*. See details of the secondary PFHC transaction here.
