Pitch Best MidCap Deal 2022: McCain Foods – Scelta Products

Name of the deal: McCain Foods acquires Scelta Products  
Date announced: 16 August 2022  
Date closed: 08 September 2022  
Published value: 100 – 250 million euros  
Buyer(s): McCain Foods  
Target: Scelta Products  
Seller: Scelta Products shareholders     

Involved firms and advisors  

Involved firms and advisors buy side:   
BNP Paribas and Squarefield (M&A Advisory), EY (Financial Due Diligence), Loyens & Loeff (Tax Advisory), Freshfields Bruckhaus Deringer (Tax Advisory and Legal Advisory Corporate M&A)  

Involved firms and advisors target:   
Rabobank (M&A Advisory), KPMG (Financial Due Diligence), Meijburg & Co, (Tax Advisory), NautaDutilh (Tax Advisory and Legal Advisory Corporate M&A)  

Involved firms and advisors sell side:   
Rabobank (M&A Advisory), KPMG (Financial Due Diligence), Meijburg & Co, (Tax Advisory), NautaDutilh (Tax Advisory and Legal Advisory Corporate M&A)  

Pitch   

Brief description deal / Deal outline   
On 16 August 2022, McCain Foods agreed to acquire Scelta Products, a leading producer of frozen vegetable appetizers and meal components, offering a wide variety of onion rings, coated mushrooms and vegetable-based snacks. The Company serves customers in retail, foodservice and B2B channels worldwide and enjoys strong, longstanding relationships with its customers. Scelta Products has demonstrated an impressive growth trajectory, while operating two strategically located facilities in Zeeland, with a third facility expected to be fully operational by early 2023 to cater for increasing demand for vegetable-based appetizers. With the transaction, McCain takes a major step in accelerating the build of their leading global frozen appetizers business, continuing to grow in Europe to serve growing demand of their combined customer base. McCain views the transaction as the continuation of a long-standing and collaborative relationship with Scelta Products.  

Why should this deal win the Award for Best Mid-Cap Deal 2022?   
Founded in the Netherlands by a group of four shareholders, Scelta Products grew into a c. EUR 100m revenue business in 20 years. Shareholders wanted to jointly sell the company for it to embark on its next phase of impressive growth. To continue its strong growth trajectory by making use of favourable market trends for vegetable appetizers, Scelta Products started to build a new factory in Rilland to be finalised Q3 2022. This deal deserves a nomination given the fast execution – 8 months from pre-marketing to closing – and the complex nature of the transaction such as a transfer of ownership for a significant share of contracts and the construction of a new facility.   

Strong cooperation between the client and the execution team led to thought-through marketing materials that highlighted the key attractions of Scelta Products and captured future value creation efforts.   

There were several complexities related to the asset. The first concerns the longstanding relationship with Scelta Mushrooms, with the company acting as a commercial platform for Scelta Products and hence holding a significant share of the sales contracts. Scelta Mushroom is owned by one of the four shareholders and they were interested in continuing the relationship after a potential transaction. In order to optimally position Scelta Products in the market, in which the company would have full control over all contracts and revenues, a structure was prepared in which the contracts would be transferred to Scelta Products. The transfer of contract was an optionality for buyers, as they could also decide to continue the current relationship with Scelta Mushrooms. A flexible transaction structure was created to extract all synergy potential, while also leaving optionality to prospective buyers that would benefit all shareholders, also with regards to non-financial, personal goals.   

The second complexity relates to the construction of the Rilland facility, which was planned to be finalised after the conclusion of the sale process. The interest of the existing shareholders of Scelta Products needed to be carefully managed regarding compensation for the upsides in relation to the completion of the facility, while also providing sufficient comfort and security to the final buyer on its correct and satisfying finalisation.   

Finally, the reliance on McCain as Scelta Products’ number one customer required appropriate framing during the sale process. The strong relationship between Scelta Products and McCain Foods was underscored to assure potential buyers of the continued relationship in the future. Next to that, additional emphasis on Scelta Products’ diversified customer base and, in particular, its numerous and varied collaborations with other clients on new product innovations, provided further comfort on future revenue streams.   

In addition to the deal-specific complexities outlined above, the outbreak of the war in Ukraine increased uncertainty in the market, placing pressure on input costs and thus results. By providing transparency and datapoints on Scelta Products’ ability to pass cost price increases towards their customers, the final buyer could be assured of their potential investment, and the selling shareholders did not have to lower their expectation for the final outcome of the process. There was strong interest from a mix of strategics and financial potential buyers, which created competitive tension throughout the whole process.   

As the number one customer of Scelta Products, McCain Foods demonstrated a clear motivation to incorporate the business and create value from the commercial synergies that would arise from combining the two business units, and therefore came out as the winning bidder. Parties successfully came to a mutual sale agreement with the shareholders of Scelta Products in August.  
  
Deal rationale:   
The continuity of Scelta Products is secured with the continuation of a long-standing and collaborative relationship with McCain. As the number one customer of Scelta Products, McCain considers the company to be a natural complement with shared values as family-owned companies. They will build on the strong legacy of Scelta Products by bringing their products to their own customers while simultaneously expanding on Scelta Products’ core business. With the transaction, McCain took a major step in accelerating the build of their leading global frozen appetizers business, continuing to grow in Europe and the UK to better serve the combined customer base of McCain and Scelta Products.   
  
Scelta Products says to be thrilled to become part of the McCain family and to see that the business they have personally started, will continue to be built upon. The selling shareholders of Scelta Products were motivated to find a strong partner to lead the company in its next growth phase, and enable further investment and expansion on the back of a larger complementary platform.  

What is the impact of this deal for the company?   
McCain Foods will provide Scelta Products with the expertise and financial backing for investments to continue to build on and expand their product range. They are committed to support and accelerate Scelta Products strategy of further driving organic growth, while being able to integrate the business with their own appetizer division. The corporate identity, values and culture will be maintained, as the shared values from being a family-owned business was a key aspect in the decision making for McCain. Scelta Products’ management is thrilled to become part of McCain family and the fact that the legacy of Scelta Products’ will continue.  

What is the impact of this deal for the direct stakeholders?   
The transaction reflects a very compelling offer price for Scelta Products shareholders, while best safeguarding the interests of both Scelta Products’ management, employees and customers. The deal was the optimal outcome for all relevant stakeholders. Next to that, consumers will be able to enjoy and implement vegetable snacks in their everyday life, as Scelta Products becomes part of McCain’s broader offering.  

What is the impact of this deal on society?   
Global demand for prepared (vegetable) appetizers is growing considerably, with innovation having a key role to cater shifting consumer habits. Having McCain Foods as the new shareholder allows Scelta Products to grow faster, to better act upon opportunities in the market, and continue their innovative efforts. With more and more individuals becoming vegetarian/flexitarian, the acquisition of Scelta Products by McCain will significantly increase the offering choice for these individuals.  

What was most complex about this deal?   
The complexity of the deal was twofold. The first entails the longstanding relationship with Scelta Mushrooms, who acted as a commercial platform for Scelta Products and hence held a significant share of the sales contracts. To optimally position Scelta Products in the market, in which the company would have full control over all contracts and revenues, a structure was prepared in which the contracts would be transferred to Scelta Products. It was not only important to clarify this structure to potential buyers and offer them the optionality, but also to manage the internal stakeholders to come to a mutual satisfying agreement.   

Next to that, the Rilland facility formed another complexity in the deal. As the new factory was still under construction but formed an important part of the business plan, potential buyers had to be convinced about the potential value pay-off of the facility. It was important for McCain and Scelta Products to come to a mutual agreement on the definition of what a satisfying finalisation would entail.