Michael Foods to be sold to Post Holdings for $2.45bn

June 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Cereal manufacturer Post Holdings Inc announced in mid-April it had agreed to acquire Michael Foods Inc and its related entities from an ownership group consisting of affiliates of GS Capital Partners, affiliates of Thomas H. Lee Partners, and others.

Post Holdings expects the $2.45bn transaction to be completed in the second quarter of 2014, Post’s fiscal third quarter, subject to customary closing conditions. The transaction will be completed on a cash free, debt free basis. Under the terms of the deal Post will make a further payment of $50m on the first anniversary of the closing date. Post has announced that it will fund the deal with committed financing of up to $1.76bn, including a bridge loan of up to $340m and cash in hand. The company expects to generate synergies of around $10m once the deal has been completed, and plans to replace part of the committed financing by selling around $500m of additional equity or equity-linked capital. Post Holdings estimates Michael Foods’ adjusted EBITDA will be $255m to $270m for the 2014 calendar year. The firm recorded an operating profit of $163.9m in 2013, an increase of 22 percent on the previous year.

The deal for Michael Foods, which employs around 3700, will see Post Holdings complete its largest ever acquisition, and also bring about the end of a long period of private equity (PE) ownership of the company. Michael Foods’ previous owner GS Capital is the PE unit of Goldman Sachs, which itself purchased the company from Thomas H. Lee Partners, a Boston based PE firm in 2010. Thomas H. Lee owned the company for seven years. The firm and a number of other investors including Michael Foods’ current management structure had retained an interest in the firm before Post Holdings agreed to the acquisition.

According to a Post Holdings statement, Michael Foods will continue to operate independently once the acquisition has been completed and will remain headquartered in St Louis, Missouri. Furthermore, the company’s existing management team will also be retained, with the firm continuing to operate under the leadership of Jim Dwyer, chairman and CEO of Michael Foods. “This is an exciting time for the entire Michael Foods team and clearly demonstrates the strength of our brands, the value of our deep customer relationships and the dedication of our employees,” said Mr Dwyer. “We believe our business will benefit from Post’s portfolio management approach and from our continued focus on the breakfast daypart, expanding egg consumption to all dayparts, and delivering convenient meal and snack choices to consumers.”

Michael Foods, which operates plants in both the US and Canada, generated $1.9bn of net sales for the year ended 28 December. The company’s sales figures for 2013 represented an increase of 5 percent from the previous year. Post Holdings manufactures ready to eat cereals, snacks and active nutrition products in the US and Canada. Michael Foods produces and distributes egg, cheese, dairy case and potato products to food service distributors, restaurant chains, food ingredient companies, and the retail grocery market in North America, the Far East, South America and Europe.

Since the company was spun off from Ralcorp Holdings in a February 2012 IPO, Post Holdings has been aggressively pursuing acquisitions. The company has completed deals for Dakota Growers Pasta Co, peanut butter maker Golden Boy Foods Ltd, sports nutrition brand PowerBar, protein bar maker Dymatize Enterprises LLC and dietary supplements company Premier Nutrition Corp. It is believed that Post Holdings beat competition from US meat processor Tyson Foods Inc to secure the deal for Michael Foods. The companies were the final two bidders for the firm.

Richard Summerfield