Last week, Pipers announced it had been sold. The surprise in the announcement was that Pepsico had acquired it – a firm that generates Pipers’ annual sales every couple of hours. Why would they buy a brand this small?
Is this good news for entrepreneurs who can jump from start-up straight into the hands of food giants?
Is this bad news for private equity who have taken a major role in steering early stage brands through to national and multi-national footprint prior to transferring ownership to Big Food?
Multinationals burnt their fingers buying small entrepreneurial brands and moved away from the strategy 15-20 years ago. Phileas Fogg, Boca, Slimfast, Back to Nature, all examples of innovative brands swallowed by multinationals and then destroyed…Slimfast taking many years to achieve an impressive recovery.
In all cases the issue was that whilst the brands might have been interesting and authentic, they became lost within the acquiring organisation, and without the energy and enthusiasm of the entrepreneurial owners they lost their way. Integration killed them.
Multi-nationals became cautious about buying new innovative brands. They waited until they were larger in scale. They were more wary about integration. They set up venture groups. There was probably an un-written rule that If the target isn’t big enough to justify support within the new organisation then it may be better not to acquire it at all. When I spoke to the Strategy Director of one of the big multinationals a few years ago, he said if the turnover of the target wasn’t $200m it wasn’t going to get considered.
Coca Cola’s acquisition of Innocent almost 10 years ago is a great example of the alternative approach: Innocent’s sales were >£100m when it made that move, but importantly it kept the business separate from the core and it remains pretty separate even today although some areas of integration have been applied. Mars acquired Kind last year, but sales were already $700m at the time.
So what is going on with Pipers? How can Pepsico make sense of acquiring such a small operation?
Pepsico would no doubt say, this is an attempt to enter a new channel. Pipers is very strong in independent and foodservice channels. Not that Walkers isn’t strong there too. Walkers has tried and failed to enter the market created by Kettle and Tyrrell’s for “hand-cooked” crisps – perhaps they see acquisition of a premium crisp brand as their best route in. Or perhaps they are protecting their existing UK profit stream and just didn’t want someone else to own it.
Whatever the reason, the challenge will be keeping some management focus on the business. Pipers will probably not even be one of the top 10 brands within the Walkers stable and brands 3 times the size like Snack-a-Jacks are struggling to be prioritised within the mix.
But what does this mean for entrepreneurs or private equity companies that nurture brands in early stages? If multinationals are buying brands this early in their development, it may be bad news for Private Equity. PE firms have typically been the brand custodians who support entrepreneurs as they take their brands into mainstream channels. Take Tyrrell’s as a case in point – Langholm PE acquired it in 2008 with sales of £13m, sold it to Investcorp, another PE firm for £100m when its sales had more than doubled, who then sold it to Amplify a strategic owner in 2016 when sales were closer to £100m. If the strategic owners are buying businesses at £10m of revenue then PE is cut out of the development chain altogether.
For entrepreneurs, the opportunity to sell to strategic owners may appear attractive. PE ownership brings with it an element of lock-in where the entrepreneurs have to remain in place until the exit and possibly beyond which means there can be a long wait for that elusive pot of gold. But corporates can be difficult to navigate, and will often insist on lock-ins for management but without the same ability to influence decisions. Under PE ownership, the PE house generally gives entrepreneurs a high degree of freedom. The choices for entrepreneurs are therefore not straightforward.
In any case, assuming Walkers assumes control of Pipers, it will be interesting to see how it survives – a small brand within a mega corporation. If it thrives, it may signal other multinationals to take a similar approach and therefore PE may struggle to have a role in developing up and coming brands. But I wouldn’t bet on that scenario.Tags: Acquisitions, Brands, CMA, Crisps, Foodservice, M&A, Mondelez, Pepsico, Private equity, Slimfast, Tyrrells, Unilever, United Biscuits, Walkers