It is quite a feat for an English company to convince American consumers to buy a French product that’s actually manufactured in Canada,” says BGF’s head of portfolio for the north of England, Ben Barker, fresh from an exit of bakery company St Pierre Groupe. It was a four-year investment for BGF, which yielded a 10x return for the growth investor.
The Manchester-based St Pierre Groupe dramatically expanded its US operations over the investment period, and during this time also increased its distribution and visibility within the UK market (for which its brioches and other baked goods are actually produced in France).
It is something of a triumph of marketing for a Didsbury company to profess a passion for bringing the authentic Parisian experience into every home across the US and for making “everyday moments magnifique”. But such positioning – plus evolving retailer relationships on both sides of the Atlantic – led to a $300m-plus sale to Mexican mega-baker Grupo Bimbo. That ultimate price was inflated by a bidding war and – at the time of October’s deal – a barely precedented favourable exchange rate.
“It was an exceptional return,” says Barker. “Not many investors would anticipate making a 10x money multiple on a regular basis, but we were always confident about St Pierre’s growth potential and how attractive it would be to prospective buyers.” BGF has exited more than 70 businesses in the past two years, more than doubling its return on the £600m invested across these companies, but St Pierre’s multiple was a clear outlier.
“We’ll not see a deal like this again for many years,” says Chris Stott who, as head of both food and drink and deal advisory north for KPMG, completed the vendor due diligence (VDD) during the deal process. “Deal valuation was healthy and we worked on a similar branded food deal, which sold to US private equity for a similarly strong valuation. We thought we’d hit the top of the market, but clearly we hadn’t and the way the St Pierre deal came together was pretty unique.”
Competitive tension Stateside
Investment bank Harris Williams won the mandate to advise St Pierre on the sale, in part because of its boardroom-level contacts with interested North American corporates.
“They knew the buyers very well,” says Barker, “and that ability to understand how buyers will be thinking about this acquisition made it a really valuable performance from the corporate finance adviser – particularly towards the end in terms of leveraging when competitive tension drives the best value.”
The KPMG VDD report was written “to make the company available to both private equity and trade”, says Stott. St Pierre had a ready-made management team – augmented during BGF’s period of ownership – that was “ready to go again”. However, it soon became clear that big trade players could gain greater value from synergies with their existing businesses than any private equity bidder.
The UK part of the operation, which includes the Baker Street and Paul Hollywood brands, is a fixture in major supermarkets. Its founders Paul Baker and Jeremy Gilboy felt they’d got the business to a position where they could step back.
Says Stott: “We ended up with a handful of US trade buyers really excited over it. At the same time, the US dollar exchange rate meant it suddenly got a lot cheaper [for them] to buy the business. Also, St Pierre’s US operation had grown thanks to its distribution relationship with Lipari and their routes to stores and hotels, but rival buyers could further leverage their own distribution footprint to drive further growth.”
The EBITDA had tremendous scope for improvement and that created the competitive tension.
Proving ground
BGF helped to develop the management team over the investment period, so the founders “could evolve into roles, where they were no longer the key people and were able to therefore exit in full”, says Barker. “The team has been excellent during the course of our investment and I will give the founders, Paul and Jeremy, huge credit for recognising that the management team needed to evolve as the business grew.
“They were very open-minded about the additional skill-sets required in the business and that increased professionalism across the business and helped drive better operational performance. It’s fair to say that the business was much more commercial at the point we exited.”
Stott and KPMG were involved in the process of BGF’s investment in 2018, with Stott developing a relationship with the management team. “Back then, there was still plenty of opportunity in both the UK and US markets to grow, but the challenge was executing on the market potential,” says Stott. “So it was very pleasing to see in the four subsequent years the business gear up resources to deliver on that market opportunity.”
Some of the private equity community, Stott remembers, were anxious about the “disintermediation risk” of St Pierre’s French bakers selling direct to Walmart, but “BGF absolutely bought into it and did a cracking job of listening to Paul Barker explaining that the product positioning and development, the innovation, the ranging and the rapport built with consumers meant Walmart valued their relationship – and that turned out to be the case.”
But some are now “kicking themselves because they thought they’d missed out, and they had”, says Stott. For Barker, “Part of our investment thesis was a real opportunity to drive growth into the US. A lot of UK businesses have tried to do that and found it really hard, particularly on the consumer side. Success is often related to the strength of the brand. We conducted a rebranding within the first year of investing, where the team did an excellent job, supported by external advisers. That had a big impact.”
Rising interest
The commercial strength of the business was assessed by PwC Strategy&, which carried out vendor commercial due diligence on the UK business. Mckinsey handled the US-side vendor commercial due diligence.
PwC Strategy& director Sam Farnfield says: “We conducted a detailed analysis of the business and its market environment. We also spoke to select retail partners and carried out consumer research with a survey of 2,000 UK consumers.
“Food is a relatively protected category at the moment, versus other areas of discretionary spend. While there are declines in some areas of the baked goods market – such as sliced bread – St Pierre is positioned in relatively higher growth segments, particularly around buns, brioches and waffles. Within these categories, the brand has been successful at attracting a younger and more affluent shopper.”
It’s music to investors’ – as well as vendors’ – ears, although Stott adds a note of caution: “I sold Pride Valley Foods to Grupo Bimbo 15 years ago and it made a lot of changes post deal. St Pierre is not broken, and it’s growing very nicely so hopefully Bimbo can continue to foster that entrepreneurial spirit.”
History of St Pierre
St Pierre Groupe was founded in Manchester in 1986 as Carrs Foods. It changed hands in 2004 following a management buy-out, with finance manager Jeremy Gilboy and technical director Paul Baker taking control of the company. “Jeremy was bringing brioche products into second-tier discount retail stores,” remembers KPMG’s Chris Stott, “but then they got into Asda and from Asda they got into Walmart and from Walmart they built a distribution relationship with Lipari.”
The company debuted in the US in 2014, growing its annual sales from £20m in 2012 to £69m in 2018. BGF came on board at this point, with £8m of capital investment. Then in 2019, Carrs changed its name to St Pierre Groupe.
At the time of the exit, the US made up approximately 50% of the group’s sales, with US retail revenues rising from $34m to $130m during the growth fund’s hold period.
The purchaser in the £300m-plus deal, Mexico City-based Grupo Bimbo, has been active in cross-border M&A over the past year, buying up Brazilian assets from Swiss baker Aryzta, acquiring US cookie-maker Emmy’s Organics, popcorn maker Popcornopolis and Indian bakers Kitty Bread and Modern Foods.
“Grupo Bimbo emerged as the logical buyer for an asset-light business like St Pierre that will benefit from the global capabilities of Grupo Bimbo, the world’s largest bakery,” says Andreas Poth, a director at financial adviser Harris Williams.
“The St Pierre deal is a standout exit that demonstrates the strength and depth of the BGF investment model, delivering excellent returns for all. The business has proved its growth potential, and the results achieved during our investment period evidence the team’s commitment to growth and the solid foundations that we strive to build with our portfolio businesses to help them achieve their aims.”
Andy Gregory, CEO, BGF
