Setting course for expansion in shifting terrain

Whether it be day-to-day business operations or longer-term strategic decision-making, the considerations facing private equity firms, their portfolio companies and the sectors they serve are now markedly different to those expected when 2019 drew to a close. Back in December, Ardian announced a deal to acquire Cérélia – a European company specialising in fresh, ready-to-bake dough for pies, pizza, pancakes and biscuits – from IK Investment Partners. Formed through the 2012 merger of Alsacienne de Pâtes Ménagères and Eurodough, the France-headquartered company had grown rapidly over the intervening years – facilitated by acquisitions that expanded its footprint in North America, the Netherlands, the UK and Asian markets – and broadened its product portfolio. Yet neither Ardian nor Cérélia could have predicted that, at the time the deal was being signed and completed at the end of March, the landscape would have shifted so dramatically and much of the world would be in lockdown.
We caught up with Thibault Basquin, head of Americas investments at Ardian Buyout, and Guillaume Réveilhac, Cérélia’s founder and co-CEO, to discuss how they have navigated the operational challenges posed by the pandemic, how market shifts accelerated by covid have factored into growth plans, and why North America remains an attractive target for further expansion.

What were the challenges of completing a deal during lockdown?

Thibault Basquin: The deal with Cérélia had been signed in December 2019 and was closed during the early part of the lockdown period in late March. It was a time when everyone was still getting up and running, and systems and procedures were not fully in place. The team did an extraordinary job to get the deal over the finish line. Maintaining regular dialogue with the team at Cérélia was also key. Ardian is familiar with the bakery sector and so understood some of the challenges the business might have to overcome in a lockdown situation. But perhaps the most interesting aspect of the situation is that the pandemic prompted us all to think again about the company’s growth path and to take advantage of trends that looked to be accelerating through the crisis – notably, increased home baking experience.

Why was Cérélia an attractive deal for Ardian?

TB: The company was attractive for a combination of factors. It had a strong leadership position in its growing core categories, making it resilient. It also taps into a number of consumer trends, such as gluten-free, low-sugar, organic and so on, and still has significant growth potential both through organic expansion and buy and build. There is an opportunity to consolidate core categories in adjacent products across different countries. Ardian had gotten to know Guillaume and the rest of the management team over the previous five years. It’s crucial to understand management’s philosophy and the company’s DNA ahead of investing. Overall, the aim is to continue the company’s growth story; and for that, the quality of the management team is vital – we share the same philosophy. It’s also worth pointing out that the management team had an agreement with its former shareholders that it would find a new partner for the next stage of growth. The team chose Ardian in what was a management-led process.

What growth opportunities does North America provide?

Guillaume Réveilhac: Cérélia is already the market leader in Europe in pie and pizza dough and pancakes, and the company has developed significantly over the past 10 years, with organic growth of 5-7 percent a year. Now we want to expand into new markets. The North American market is very attractive and market dynamics are positive. Home baking in the US, for example, is massive, partly because there is not a bakery on every street corner as there are in many European countries, so consumers buy dough through retail outlets. The dough market is two and a half times the size of Europe’s. The market is also very concentrated. There are only a few operators with strong market positions, and our research shows there are opportunities to bring value through product development and technologies to the market.  
TB: This is very much a transatlantic opportunity. The company is strong in Europe, and the US currently accounts for roughly 25 percent of revenues, butthere is scope to grow these considerably. Ardian is dedicating a French and US team to support the company’s growth plans. It is also leveraging its US contacts to help Cérélia connect with the right people – to facilitate new board appointments, for example.

What does North American expansion entail? 

GR: Since Cérélia’s 2017 acquisition of English Bay Batter, a US- and Canada- based producer of ready-to-bake dough and cookies, there has been significant investment in transforming and modernising the business. This includes adapting a European model of innovation to the North American market and looking for consolidation opportunities. The company is also investing $50 million in building a new manufacturing plant in Ohio that will produce all its retail business in the US. Of course, it helps that Cérélia is also bringing a French spirit to the North American market and building on French bakery products’ strong reputation for quality.

What impact does the pandemic have on growth plans?

TB: There are many organic growth opportunities that stem from the pandemic. It also creates the potential to activate the M&A strategy for Cérélia faster than originally planned.GR: Post-covid-19, everything will change – for individuals, businesses and consumers. In any crisis, there are always some companies that benefit and at Cérélia we see this as a period in which to make significant improvements. It provides an opportunity to look at anything that can be done better in terms of enhancing competitiveness and also benefitting the consumer. Some innovative projects have been put on hold, while others are set to be accelerated because we believe shoppers will not behave in the way they have in the past. Those shifts will affect both products and customer channels.

What operational considerations arose from covid-19 lockdown measures?

GR: Demand shot through the roof as lockdowns came into force – Cérélia’s volume index on refrigerated dough went to 130 versus the normal 100 – a situation that would have been impossible to forecast. This meant adapting production plans to meet customer demand. At times, the company was running production 24 hours a day, seven days a week, and had to reschedule preventive maintenance plans. This clearly put pressure on people, but as Cérélia’s employees are also company shareholders, they are especially committed. Social distancing measures and very specific working practices were put in place. Teams were also given more autonomy than usual to ensure the plants were running effectively. They did this very well and handled it with a great deal of maturity, which was an important lesson throughout this.

Where would you like Cérélia to be in five years’ time?

TB: The plan is to double the size of the company, from one with €500 million of revenue to €1 billion. This involves consolidating its leadership position in Europe and growing its presence in North America and Asia.
GR: Cérélia’s long-term plans were a big driver behind the decision to partner with Ardian. There was alignment in terms of both philosophy and ambition on what we want to achieve. This means continuing to drive organic growth through geographic expansion and innovation. Together, we have agreed a capex plan to sustain expansion. Having built two factories in Europe in the last two years – one in the UK and one in Italy – the new plant in the US is due to open next year, along with another one in France to improve the company’s sustainable footprint. Added to that will be M&A activity. After successfully expanding into pancakes as a major product category through acquisitions, Cérélia is now looking to repeat this, notably with flatbreads, which encompass a whole range of products, from wraps and pittas to tortillas and rotis. The company’s technology and customer channels fit this category well and it would be a strong addition to the product portfolio. This is all about customers’ experience.

Has the pandemic accelerated environmental, social and governance initiatives?

GR: Customers already wanted to understand how supply chains affected the environment. However, this has now become even more important, so the business is working even harder to ensure the impact through its supply chain is positive and that it mitigates any issues. Cérélia’s supply chain is squarely in the realm of where the economy meets ecology because it buys agricultural products, such as wheat and oleaginous products. Packaging is another big area when it comes to sustainability initiatives. Cérélia is now accelerating its efforts to create packaging that is more easily recycled, and that requires quite a lot of work around logistics. This includes working on ways of using coated paper, for example, which will be an important driver for Cérélia’s ecological transition.
TB: The endorsement of more sustainable practices throughout this as been very important – both to Ardian’s LPs and to the firm itself as a responsible investor. Efforts in this area can also help companies to attract talent. Operating sustainably can be a big retention factor, especially among younger generations.

Article Source: Private Equity International US Mid-Market - September 2020