Quadrant Private Equity looks to confectionary giants to buy RiteBite Group

Quadrant bought Darrell Lea in 2018 for about $200m before creating the RiteBite Group the next year. Picture: Adam Yip

Quadrant Private Equity may look towards the Australian listed market when it comes to exit options for its confectionery business RiteBite Group.

But the understanding around the market is that the buyout fund is most likely to target about three or four industry giants as potential acquirers for the company that owns the Darrell Lea and Life Savers brands.

The obvious buyer is Mondelez, which sells Cadbury. However, the challenge with a sale to the US-based snack company is that it may be difficult getting a deal past the Australian Competition and Consumer Commission.

Next on the list of prospective suitors could be Ferrero, which sells Ferrero Rocher and Raffaello chocolates and Nutella and Tic Tac sweets.

Ferrero lined up for Arnott’s Biscuits when the business was for sale.

Then there’s the Arnott’s Biscuits owner Kohlberg Kravis Roberts, although its focus is more towards healthier brands.

Nestle also could be a possibility, although it’s thought to be unlikely, as it has been distancing itself from the confectionery market.

In fact, it sold sweet brands in New Zealand to RiteBite itself about six years ago, so a move back into the market would be surprising.

Other major global chocolate producers are Mars and Lindt & Sprungli.

There are estimates in the market that a sale price for RiteBite of around $700m could be achievable.

Quadrant is positioning the business to generate about $70m in annual earnings before interest, tax, depreciation and amortisation, and such businesses typically sell for about 10 times EBITDA.

Investment bank UBS is understood to be positioned to sell the business when Quadrant is ready to press the button on a sale process.

Another possibility is that it similar targets selected buyers to test their interest separately.

The private equity firm was believed to be thinking about a sale of RiteBite in 2021 but pulled back in an effort to focus on growing earnings and the challenge the business currently faces is the rising cost of cocoa, along with other inflationary pressures.

The understanding is that the private equity firm is keen to move forward with a sale, but is waiting for it to stabilise.

The price of cocoa futures stayed stable for about a decade at about $US2500 a tonne but rocketed to almost $US8000 a tonne this year – doubling on the price from last year – on the back of weather disruptions in key cocoa producing continents such as Africa.

According to The Wall Street Journal, the Ivory Coast is the world’s largest cocoa producer ahead of number two producer Ghana, and the largest market is Europe, importing more than half of the world’s cocoa beans.

Confectionery producers are addressing the challenge by keeping the price point for their products the same but offering smaller sized products.

Quadrant bought Darrell Lea in 2018 for about $200m before creating the RiteBite Group the next year.

RiteBite owns confectionery and snack brands such as New Zealand’s RJ’s and Life Savers, Well Naturally, The Bar Counter, Munchme, Systemax, Planet Food, CrispyFruits and Smooze.

The Darrell Lea brand is best known for its licorice, chocolate bullets, all sorts and Rocklea Road.

It has been run by former Allied Pinnacle boss James Ajaka since 2020.