The last listed owner of Quorn was Premier Foods, which sold it to a private equity firm for £205m in 2011. But the innovation behind the protein took place over 10 years in the agricultural labs of ICI in a joint venture with the conglomerate Rank Hovis McDougall, whose bread business, Hovis, subsequently formed the spine of Premier Foods. RHM eventually sold its share in the joint venture to AstraZeneca, which then offloaded it to private equity a decade later for £72m, who then sold it to Premier Foods for £172m.
Think about that circle of transactions. Premier Foods spent shareholders’ cash on a business that in a way it had been instrumental in creating. To add further context, when Quorn was again sold the price tag had risen to £550m – a £345m gain for its second private equity owner and higher than Premier’s current market capitalisation of £330m. We don’t know how much Quorn is worth now, but the recent strength of its trading and the massive expansion of its ranges and factories suggests it is likely to be much higher.
Premier’s long-suffering shareholders should be asking how successive management teams have let so much value slip through their fingers. Indeed, while current complaints lie with the rejection of a recent 65p a share bid, two-thirds higher than today’s share price, they should be more upset that instead of creating a steady accumulation of value for shareholders management has instead created a steady stream of cash for investment bankers and private equity groups.
This is not something I say with 20:20 hindsight, either – when Premier sold the brand in 2011 I pondered on our now defunct Chronic Investor blog that it had perhaps sold off the wrong part of its product portfolio in its desperation to keep its bankers happy. Quorn was on the right side of a trend towards healthy eating, with difficult to replicate intellectual property and few noteworthy competitors – what Warren Buffett might call an economic moat. On the other hand, the kitchen staples that made up the rest of the portfolio were being squeezed on price by new entrants, own- and licensed brands and aggressive supermarket buyers. A quoted Quorn-only business could have been as exciting for investors as, say, Fever Tree Drinks, another premium niche product making a market its own.
As investors we pay lots of attention to a company’s headline financials and forecasts. But the case of Quorn shows that we need to dig deeper still to put them into context – into strategy and management’s ability to execute it, and the motivations for dealmaking. Numbers matter, but the businesses and trends behind them matter more.
