Finsbury Food (FIF) surprised the market last week with the announcement of a £56m acquisition, which will nearly double the size of the company. The baker has raised £35m in an oversubscribed share placing - at 59p - to part-fund the purchase of fellow bakery business Fletchers Group.
Chief executive John Duffy's excitement over the acquisition was palpable as he explained the significance of the purchase, which will complement Finsbury's current business and make it one of the largest speciality bakery groups in the country, with annual sales of nearly £300m. Half of Fletcher's business caters to the foodservice segment, a fast-growing area to which Finsbury has zero exposure. "That was a key attraction for us and we want to continue to grow and invest in that market through Fletchers and its Kara brand, which caterers and wholesalers recognise," said Mr Duffy.
The foodservice bakery market in the UK is worth £900m a year, 70 per cent of which is morning goods. Fletchers is a big player here, making croissants and breakfast rolls, but it also produces special breads, burger buns, cupcakes and doughnuts. Clients range from small wholesalers to large national players, and end users range from coffee shops to KFC. What's more, one of Fletchers largest grocery customers is M&S - currently not a client of Finsbury.
With the supermarkets in total turmoil, it's perhaps no surprise that Finsbury is actively diversifying its customer base. Even before the acquisition, Mr Duffy explained that the company was turning to faster-growth areas, including burgeoning discount grocers Aldi and Lidl. "You have to follow the consumers, while safeguarding existing relationships," he said.
Fletchers is a well-invested business. Its private equity owners have poured £13m back into the company over the past two years. "This was a big attraction," said Mr Duffy. "We can bring things to the table and they can too." Because of the scale of the acquisition, it is being treated like a reverse takeover and the enlarged share capital of the company will have to be relisted. Completion is expected by 30 October.
