Greencore sells US operations to Hearthside in US$1bn plus deal

15 Oct 2018 --- Greencore Group plc has agreed to the sale of its entire US business, Greencore US, to an affiliate of Hearthside Food Solutions LLC for US$1,075 million on a cash and debt-free basis. Greencore says that following the deal, it expects to have a leading position in its core UK market, greater financial and strategic flexibility and potential for dynamic capital management. Hearthside believes the transaction marks a significant step in the further growth and development of its network.

The deal between Greencore USA – a leader in frozen contract packaging and a top producer of refrigerated, fresh-made sandwiches, entrees, and salad kit – and contract manufacturer, Hearthside Food Solutions, Hearthside, is expected to be completed by late November, subject to the approval of Greencore shareholders, regulatory approval and customary closing conditions.

Net proceeds of around £802 million (US$1 billion) will allow for Greencore to declare a special dividend of 72 pence per ordinary share, representing an aggregate amount of £509 million (US$667 million) in cash, to shareholders.

“Consumer choice is driving growth in frozen, refrigerated and fresh sandwiches/entrees, where Greencore USA is a recognized leader. Leading brands are expanding into these categories and are seeking additional value chain services. The acquisition of Greencore USA will expand our production, innovation, and R&D capabilities across these categories,” says Rich Scalise, Hearthside Chairman, and CEO.

Greencore USA is the US unit of Greencore Group plc, an Ireland-based public company. Greencore USA operates 13 locations across North America, with 3,500 employees, and 2017 revenues of US$1.4 billion.

Hearthside was acquired in May 2018 by Charlesbank Capital Partners and Partners Group on behalf of their clients. Greencore USA, prior to being purchased by Greencore Group PLC, was known as Peacock Foods and owned by Charlesbank from 2010-2016. The equity for this transaction will be provided by Charlesbank and Partners Group, each of which has reserved significant incremental capacity to continue to invest organically and through acquisition in the Hearthside platform.

“The synergies and complementary strengths of Hearthside and Greencore USA are impressive. Both serve the world’s premier food companies, and are known for and committed to lean, world-class manufacturing, setting high standards for quality, safety, and speed-to-market,” adds Chris Russell, Managing Director, Partners Group.

“Both companies are also committed to innovation and exemplary customer service, possessing complementary category expertise and capabilities. The combination of the two companies will generate exciting new product and service opportunities for their customers.” 

The transaction will also support a strengthened balance sheet, with up to £293 million (US$384 million) to be used to reduce leverage and a target medium-term leverage range of 1.5-2.0x Net Debt/EBITDA.

Post-transaction, Greencore says it intends to;

• Extend its leadership position in attractive categories and formats within the structurally growing convenience food market.
• Deepen its long-term partnerships with customers.
• Execute a number of value-creating initiatives in a dynamic and changing UK marketplace.
• Focus the organization on UK opportunities with a strong team of leaders with industry-leading experience and expertise across strategy, commercial, manufacturing, technical/food safety, and people development.
• Drive sustained growth, returns and cash flow for its shareholders.

“We believe that the proposed sale of our US operation represents a compelling and immediate realization of value for Greencore’s shareholders. We have always had a firm conviction on the underlying value and growth prospects of our US business and believe that this offer fully reflects that,” says Greencore’s CEO, Patrick Coveney.

“Looking ahead, we are confident that we can deliver further growth and returns in the dynamic UK market. The proposed transaction would enhance our strategic and financial flexibility, which would allow us to build on our industry-leading position in our core UK market while also taking advantage of emerging organic and inorganic growth opportunities.”

The Greencore USA acquisition expands and diversifies the Hearthside network to 38 production facilities in the US and Europe.

At the beginning of this year, Greencore reached an agreement to sell its cakes and desserts business in Hull to Bright Blue Foods Ltd., one of the UK’s leading ambient cake manufacturers. This sale, together with the announced closure of the desserts facility in England, marked Greencore’s exit from the UK cakes and desserts sector.