Tuesday 13 November 2018

the quiet man

The former number two has always had a taste for big deals in the global food business

THIS week's €385m acquisitions, the company's third and fourth major deals in less than three months, complete the transformation of Aryzta, the former IAWS, from Irish co-op to global food giant.

It's been a busy few months for Owen Killian, the 57-year old chief executive of Aryzta, the Swiss-listed but Irish-based baked-bread behemoth.

On Thursday, Aryzta announced that it was paying €349m to buy out its partner's -- Canadian coffee-and-doughnut chain Tim Hortons -- 50pc stake in their 400,000sq ft bakery at Brantford, Ontario. Completed in 2003, the bakery had been supplying the 3,300 Tim Hortons outlets across Canada and the US.

Also on Thursday, Aryzta revealed that its US subsidiary, Fresh Start Bakeries, was investing €36m in three bakeries in Singapore, Taiwan and Malaysia. Aryzta is planning to fund these deals through the issue of a perpetual callable subordinated instrument, basically a hybrid debt/equity bond, in the near future.

Almost €400m of deals would be more than enough for most companies to be getting on with. However, Thursday's acquisitions come less than three months after Aryzta announced that it was spending $1.08bn (€830m) on two US acquisitions.

Fresh start

It paid $900m to purchase Fresh Start Bakeries, a specialist supplier of bakery products with 29 production facilities spread across North America, mainland Europe, Latin America and Australia. Aryzta also revealed that it was paying $180m for Great Kitchens, which supplies pizzas to the US retail sector.

When the latest series of acquisitions are bedded down they will add at least a further $1.03bn to Aryzta's sales and $165m to its EBITDA (earnings before interest, taxation, depreciation and amortisation).

The actual boost to its sales and revenues will almost be considerably greater than that. At present, the Brantford bakery is only operating at 55pc capacity. This is almost certainly because other fast-food chains and retailers were reluctant to do business with what they saw as a competitor-owned facility. By taking full control, Aryzta removes this brake on Brantford's expansion.

These latest acquisitions will push Aryzta's annual sales close to €5bn and its EBITDA to almost €500m.

This means that Aryzta is rapidly closing the gap on the Kerry Group, which has up to now been the unchallenged leader among Ireland's indigenous food companies.

It's all a long way from the old Irish Agricultural Wholesale Society, originally established more than a century ago. IAWS followed the example of most of the other Irish agricultural co-ops and floated its shares on the Irish Stock Exchange in 1988.

At the time of the original flotation, IAWS was a mish-mash of businesses consisting mainly of agricultural feed and fertiliser distributors. Outside of agri-business circles, the immediate reaction to any mention of the company was yawns all round.

That all changed in 1997 when IAWS paid what then seemed like the incredible price of IR£50m (€63.5m) for Cuisine de France, the par-baked French bread company which introduced newly affluent Irish consumers to the joys of the baguette.

Cuisine de France

Cuisine de France reputedly only became available to IAWS when several other potential buyers, including Greencore, refused to pay the apparently "excessive" price being demanded by its founders, Pat Loughrey and Ronan McNamee.

The acquisition of Cuisine de France was, to use the American term, a "game changer" for IAWS, paving the way for its transformation from stodgy flour miller, fertiliser and fishmeal distributor to fast-growing consumer foods company.

Emboldened by its success with Cuisine de France, IAWS acquired several other companies in the baked goods sector. These included Delice de France, the UK's leading supplier of baked goods to food service operators, in 1999, followed by the La Brea Bakery, the pioneer of the artisan bread movement in the US, and the joint venture with Tim Hortons, both in 2001.

In the early years the transformation of IAWS was virtually synonymous with its long-serving chief executive Philip Lynch. From the time he was first appointed to the position in 1983, the sometimes irascible Lynch seemed to embody IAWS.

So when Lynch announced his decision to hand over to his long-time protege Owen Killian as chief executive in 2003, there was understandable nervousness among some IAWS shareholders. Would the new man be able to successfully follow in his master's footsteps? Business is full of examples of longtime deputies who failed miserably when promoted to the top job.

They needn't have worried. The Roscommon-born Killian had been with IAWS man and boy, first joining the company in 1977 soon after completing an agricultural science degree at UCD. After becoming chief executive in 1983, Lynch quickly identified Killian's talents appointing him as his personal assistant.

For most of the following decade-and-a-half wherever Lynch went so did Killian. While Lynch was never backward about coming forward, Killian preferred to stay out of the limelight. However, those who were familiar with the company at this time stress that Killian was fully involved in all of the major decisions taken by IAWS, including the pivotal purchase of Cuisine de France.

It was following the Cuisine purchase that Killian first began to step out from behind Lynch's shadow. In 1999 he was appointed chief operations officer and became an IAWS director. Two years later he was made head of IAWS' food operations. With the company having bet the farm on Cuisine this was a clear indication that Killian was the heir apparent at IAWS.

When Killian took over the reins at IAWS seven years ago the company had annual sales of €1.25bn, pre-tax profits of €82m and earnings (after-tax profits) per share of 53 cent. For the year to July 2009, Aryzta (as the company has since been renamed) had sales of €3.2bn, pre-tax profits (before once-off exceptional items) of €200m and earnings per share of €2.35.

The key to the transformation of IAWS under Killian was the 2008 "merger", in reality an IAWS takeover, with Swiss baked-goods company Hiestand to create Aryzta. This was a protracted process, which took five years to bring to fruition.

During the extended courtship of Hiestand, Killian played his hand brilliantly, successfully navigating Swiss national pride, Hiestand's formidable anti-takeover defences and sometimes litigious Swiss shareholders. Over the five-year period Killian demonstrated seemingly unlimited reserves of tact and courtesy, tactical brilliance, infinite patience and animal cunning.

IAWS bought its initial 22pc stake in Hiestand in 2003. It increased its stake in the company to 32pc in 2005. But it wasn't until 2008 that it was able to complete the merger/takeover of the Swiss company.

What was even more remarkable was that, at the same time as Killian was trying to reel in Hiestand, it was business as usual at IAWS.

In 2005, IAWS acquired the French company Groupe Hubert and, in 2006, US cookie and muffin manufacturer Otis Spunkmeyer.

This ensured that when the time came to consummate the deal with Hiestand it was IAWS which was the dominant partner. IAWS shareholders emerged with 83pc of Aryzta, while all of the executive directors came from IAWS, including Killian, who became Aryzta chief executive. Transferring Aryzta's main listing to the Swiss Stock Exchange was the main concession made to Swiss sensibilities.

This year's acquisitions have laid the foundations for further growth at Aryzta.

Seven years after Killian was first appointed, no one is asking if the former number two is up to the top job.

Irish Independent

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