Is the reign of cost-slashing private equity over in the food industry?
Hi, Term Sheeters. Happy Friday!
I want to circle back to an acquisition that got a little lost given the Crystal Ball edition and Elizabeth Holmes trial.
3g Capital—after a near-seven-year hiatus from major dealmaking—announced it was back at it with a $7.1 billion deal for Hunter Douglas, a Netherlands-based window shutters company. 3g purchased a 75% stake of the holding company.
That deal is large. It’s also a far cry from what you may have expected from 3g. The private equity firm made a name for itself as a cost-cutting buyout firm in the food and beverage business. Think layoffs, new budgets, and executive replacements at companies like Heinz (later Kraft Heinz after the major acquisition) or Anheuser-Busch InBev SA, the brewing company behind Budweiser and Corona. Popeye’s, Burger King, and Tim Horton’s all fall under Restaurant Brands International, which is owned by 3g. The firm has historically been known for using “zero-base budgeting” to obtain rigid efficiency, where managers have to justify expenses every single year, rather than rely on historic metrics.
The “ZBB” method seemed to have run out of steam (though it appears to have made somewhat of a comeback during the pandemic). 3g, too, began running out of steam, as the Wall Street Journal reported at the end of 2019: The firm was intently focused on saving, and less so on investing in innovation for new products. That was taking a toll on sales as consumers began favoring organic and natural ingredients above historical loyalties to a given label. After all, there are only so many costs to hack away at. “I’m a terrified dinosaur,” 3G co-founder Jorge Paulo Lemann said at the Milken Institute conference in April 2018, according to the Journal. The firm was “being disrupted in all ways.”
In January 2017, 3g was on track to “eat the food industry.” Now, has it opted to move on? All that being said, I just wanted to disclose that I do, indeed, have a bottle of Heinz ketchup in my fridge, in case anyone was wondering.
See you Monday,
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FUNDS + FUNDS OF FUNDS
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