Finsbury Food Group could acquire further businesses in its bid to grow and has predicted there will be further consolidation in the bakery sector in the next five to six years.

Finsbury’s chief executive John Duffy spoke to British Baker after unveiling its £56m reverse takeover of the Sheffield-based Fletchers Group – a deal which doubled the size of the business.

Duffy said Finsbury had a significant “war chest” of £35m worth of new equity and a £52m debt facility. “For the right thing, at the right time, we have significant firepower in place,” he told British Baker.

He added Finsbury had been aware that Fletchers was private equity-owned and had been keeping an eye on it for some time. However, the company moved quickly when it realised that Fletchers’ backers Vision Capital was looking to exit the business.

Finsbury had been attracted to Fletchers, said Duffy, because of its strength in the foodservice market – and so that it would help grow its own Nicholas & Harris bread business, which currently accounts for £26m worth of sales in the £176m group. With the acquisition, “We can become a major bread player in the sector,” explained Duffy.

The deal also means the company has now spread its risk with the complimentary reach of customers. Finsbury now supplies Marks & Spencer because of the buyout – a retailer it previously did not supply - and has added foodservice via Fletchers’ Kara brand.

Invest and grow

Commenting on wider M&A in the bakery sector, Duffy said it was still a “fragmented area” and added: “I think the phase of just surviving is coming to an end. Companies are looking to invest and grow.

“I think in the next five to six years, in bakery, it [M&A] is going to grow.”

Duffy also praised the work of new non-executive chairman and bakery veteran Peter Baker for his work in helping the acquisition. He said his industry knowledge, coupled with the M&A experience of Raymond Duignan had been instrumental.

And he also added the team at Fletchers would remain the same as there were learnings to be had from its experience in foodservice and the bread and morning goods market.

Also today the deal was praised by city analyst Genkos. In a note, analyst Andrew Blain labelled the purchase “transformational” and added: “Management has done an excellent job in recapitalising the business and we are encouraged that it is now looking to press on and lead consolidation in the sector with a sizeable transaction.”

Blain added: “Free cash flow of the combined business will be £10m+ enabling the group to continue to invest in earnings-enhancing capex, further bolt-on acquisitions and pay an attractive income stream.”

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