Profit downgrade riles United Malt shareholders leading to speculation private equity buyers may step in

Malting barley ready for the kilning process.

Private equity firms are believed to be once again sharpening their pencils over United Malt after its share price sunk to its lowest-ever level following a profit downgrade.

The company was met with a fiery reaction from investors at its investor day on Wednesday as the group was forced to fend off suggestions it would need a capital raising and went to great lengths to defend its position.
It means any suitor that turns up with an offer right now is likely to get their support, placing pressure on the board to accept a low-ball bid.

DataRoom has learned that there are currently talks in the market among deal-makers about a possible proposal.

Supply chain disruptions, the cost of importing barley a worsening barley crop and general inflation have been blamed for United Malt’s lower earnings guidance – now at between $100m and $108m for the year to September 30 compared with $115m to $140m earlier.

Ironically, when United Malt was spun out of GrainCorp several years ago, it was seen as the better-performing business.

Now its shares are at the lowest level since it was demerged, and GrainCorp is firing on the back of a shortage of global grain supply and bumper crop conditions.

At the time of the demerger, GrainCorp’s management, led by Mark Palmquist, took the bet on United Malt to where they jumped ship.

The group’s market value is now at $852m and one of the private equity firms understood to have been keeping a running file on United Malt is The Carlyle Group.

Carlyle is understood to have run the ruler over United Malt before the global pandemic and after, when it was worth about $1.3bn, but at those times it was too expensive.

Kohlberg Kravis Roberts bought into French malt producer Malteries Soufflet in December with InVivo, so it too may be a suitor through that business.

A suitor may win the support to buy the business at about $4 a share.

United Malt’s share price closed at $3.02 after it plunged 17 per cent on Tuesday on news of the downgrade.

The attraction for private equity is that many of the problems facing United Malt are industry wide and likely to be short lived.

But a challenge for private equity could be that earnings are cyclical – if it increases production and too much malt enters the market, prices fall.

United Malt has been in talks with its banks over its growing debt pile linked to high barley costs – its debt will briefly be over its target range of between 2 and 2.5 times before returning to its targeted range next year.

Tanarra Capital owns a 5.44 per cent interest in United Malt and is said to be dead against a capital raise.

United Malt is among the four largest malt businesses in the world. The others are Cargill, Malteurop and France’s Boortmalt, backed by Temasek out of Singapore.

GrainCorp acquired United Malt in 2009 for $757m.

Most of United Malt’s customers are craft brewers, while major domestic brewers account for about 25 per cent, and major international brewers about 28 per cent.

It generates 61 per cent of its revenue from North America and 17 per cent from Europe.