PEP’s Patties Foods on the menu for Asian buyer

Pacific Equity Partners is understood to have been in recent talks to sell Patties, which controls the Four’ N Twenty Pies brand, to a potential buyer out of Asia.

Pacific Equity Partners is understood to have had recent buyer interest in Patties, which controls the Four’ N Twenty Pies brand, from a suitor out of Asia.

The private equity firm has been working with Goldman Sachs on an exit of the business.

Goldman Sachs was close to selling Patties to a private equity fund about six months ago, say sources.

The understanding is that after Goldman’s had a party interested in the business, it tested the market to determine whether others would come forward.

However, the understanding was that the sale activity paused and the private equity firm abandoned its pursuit.

In recent times, it has been understood that Patties generated between $60m and $70m of annual earnings before interest, tax, depreciation and amortisation.

Consumer companies have faced challenges with distribution costs, staff shortages and higher food costs in the aftermath of the global pandemic and placing a value on them can be tricky, given the earnings disruption of late linked to the global pandemic.

But some believe that Patties would likely sell for a price of at least $400m.

Patties distributes its baked goods to service stations as well as supermarkets.

As well as Four’N Twenty Pies, it is the company behind Patties finger foods such as party pies, sausage rolls and Nanna’s home-baked sweets such as fruit pies and crumbles.

Previously listed, Patties was purchased by Pacific Equity Partners for $232m in 2016 and was later merged with Leader Foods.

The ready-to-eat meals sector has been growing in scale and becoming increasingly of interest to buyout funds.

Food manufacturers that sold products in the supermarket have had a couple of bumper years as consumers have been forced to stay home during lockdowns amid the pandemic.

Food is a highly defensive asset class, but margins are slim, according to one expert, which makes the generation of solid returns challenging.

Profit margins are higher for food sold to restaurants, so while volume has been higher in many categories in the past two years when it comes to food sales to supermarkets, the revenue of businesses like Patties will likely increase as other food outlets like hospitality and event venues re-open for business.

One challenge is that Woolworths and Coles are known for being fierce negotiators with their suppliers.

But Patties is being pitched as an opportunity to increase earnings through international expansion and Asia is a logical market.

Food is also on the agenda for buyers with global food shortages weighing on the minds of many linked with the Russia conflict in Ukraine.

In March last year, Patties purchased ready-to-eat meals business Fitness Outcomes, with its brands sold in Coles, Woolworths, gyms and independent stores.