From ketchup to hot drinks, family-run investment firms are shaking up the consumer deals market, squeezing out private equity players and forcing them to change strategy. Families, some of whom made their money from the consumer sector, have deep pockets and are looking to secure their wealth for future generations. They are willing to wait longer for returns, giving them the edge over private equity funds looking for a quick turnaround.
Joh A Benckiser (JAB), the investment vehicle of the German billionaire Reimann family, bid for Douwe Egberts coffee last month, creating a hot drinks empire to take on the market leaders Nestle and Mondelez International, a goal that may take some time.
"Part of the reason for traditional private equity firms not being involved in the D.E. Master Blenders transaction was that the multiples were too high to make the returns work," said Magnus Scadden , Head of EMEA Consumer and Retail at Houlihan Lokey, an investment bank.
Family-funded investments in the sector are expected to grow. In Europe this year 9 of the 51 newly minted billionaires have made their money through investments in the consumer sector, the Forbes Rich List calculated.
"Food and beverage continues to be a very attractive industry... It's a perfect storm for these guys to be more competitive. It's not that they play better, it's just they have a lot of experience in the industry and, for the most part, a different and longer investment horizon," said Jaime Arrastia, co-head of the consumer and retail investment banking division for Europe, Middle East and Africa at Barclays.
JAB have hired industry veterans to run the show, including CEO Bart Becht, who used to head up US consumer products group Reckitt Benckiser and head of audit Olivier Goudet, a former CFO of US confectionery giant Mars.
Bankers say other family companies with the potential to do such deals include Maxingvest, the investment vehicle of the Herz family, which owns the Tchibo coffee retail chain and a majority of skin care company Beiersdorf and Verlinvest, a Belgian family-owned investment holding company has invested in several consumer companies such as spirits group Remy Cointreau.
"They just have more tools in the box, more keys to unlock things," said a sector banker of family run investment vehicles. Co-investing is another option for family firms. 3G, a Brazilian private equity firm, recently teamed up with Warren Buffett's Berkshire Hathaway to buy ketchup maker H.J. Heinz for $23.2 billion.
That deal was valued at a ratio of enterprise value to expected 2013 earnings of 14.6 times, a higher multiple than private equity firms generally bid.
Family vehicles are also now teaming up with each other, as in the case of the JAB deal for Douwe Egberts. The Santo Domingo family, which made its fortune from beer, was a minority investor alongside JAB in the Douwe Egberts deal. Alejandro Santo Domingo will also become a non-executive member of the new board.
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