Drinks group Cantrell & Cochrane has made its first acquisition since its £580 million management buyout from Allied Domecq six months ago, paying £68 million (€86.3 million) for Ireland's biggest snack food manufacturer, Tayto. It is C&C's first diversification out of the drinks industry.
C&C won a four-pronged battle for control of Tayto, beating off rival bids from British group Golden Wonder, a Dublin management team backed by Mercury Asset Management and Tayto's Northern Ireland management backed by Hibernia Capital. The Pepsico-owned Walkers Crisps, which had been tipped to make a bid, is understood not to have done so.
There was some surprise in the industry that the buyout bid from the Dublin management, headed by Tayto managing director Vincent O'Sullivan and backed by Mercury, had failed, given their long relationship with owners TLC Beatrice. But in the end, the auction, conducted by Beatrice's advisers Goldman Sachs, came down to price, and the £68 million from C&C was the highest bid.
The failure of their bid was a severe blow to Tayto's management, but C&C group managing director Mr Tony O'Brien said he did not believe this would make the Tayto management under the group's new ownership any less committed : "We're absolutely happy to have the management on board with us to run the company. Any demotivation is likely to be short-lived, then it will be back to the reality of running the business for different owners."
"They will figure in our ultimate object of flotation," he added.
Mr O'Brien said that C&C, whose buyout was backed by British venture capital group BC Partners, is still on target for flotation within the next 2 1/2 years. He said that the £68 million cost of Tayto - all debt finance - would not inhibit C&C from making further acquisitions and that the group has indicated its interest to Diageo for some of the brands that are currently being sold off by the British drinks group. These brands include names like Cinzano vermouth, Metaxas Greek brandy, Asbach German brandy and Vecchia Romagna Italian brandy.
Tayto had operating profits of £7.8 million (€9.90 million) on sales of £38 million (€48.25 million) last year, but this profit figure included £600,000 interest income on cash that is being retained by TLC Beatrice. Mr O'Brien said that C&C is buying Tayto on a multiple of less than 10 times after-tax profits and that the acquisition would add to earnings from year one.
Mr O'Brien emphatically rejected suggestions in some sections of the trade that the Tayto brands are "mature" and have limited growth potential. "The snack foods business is still growing, and more and more people are eating on the hoof. Savoury snacks in particular are still growing strongly and we believe we understand the mindset of young consumers. We have a lot of marketing concepts we believe can add stimulus to the Tayto business."
Tayto's core brands are Tayto, King, Monster Munch, Snax, Texicanos and Chipsticks, and it also has a presence in peanuts and popcorn. Mr O'Brien said that Tayto - "a stunning brand" - has 60 per cent of the Irish crisps market and 40 per cent of the market for savoury snacks. Its main competitors are Pringle, KP and Perri.
He said that the Tayto and C&C business are complementary: "The customer base is identical, the route to market is identical. It's a premium brand and is compatible with what we do. It also deepens our involvement in the Irish economy and sends the right messages as we head towards flotation."
Mr O'Brien also stated that the jobs of Tayto's 350 employees are not at risk, although he warned that at some time in the future the group may have to look at reducing Tayto's three locations in Dublin to two. "If there is a relocation, it mightn't affect actual numbers, although some people may be unwilling to relocate."
Tayto's main manufacturing plant is in Coolock in north Dublin and Mr O'Brien said: "The quality of the assets are pretty good." He rejected suggestions that the Coolock plant is in need of a £20 million investment and said its only problem is its shortage of capacity.
"We will be investing to increase that capacity with state-of-the-art equipment and have no plans to take out capacity," he said.
Tayto's other Dublin sites are in Ballymount, where the group has a distribution warehouse and 10 acres of land as well as the King Crisps operation in Inchicore.
Meanwhile, C&C Wholesale, the C&C subsidiary which supplies drinks to the licensed trade, has opened a new £1 million depot in Killarney and plans to open two more depots this year in Ballyshannon, Co Donegal, and Dublin.
