Primo sale brings home the bacon

The big price paid by fresh meat processor JBS for smallgoods business Primo highlights the desire among food producers to capitalise on the rapidly growing Asian market.

Three years ago the Lederer family sold a 70.1 per cent interest in their Primo Group to the private equity firm Affinity Equity Partners in a deal which placed an enterprise value of $740 million on the smallgoods business they had founded in 1985. Today the business was sold for $1.45 billion.

That’s a remarkable outcome for both the family and Affinity, with the family effectively selling their remaining 29.9 per cent of Primo for 85 per cent of the value attributed to the 70.1 per cent it sold to Affinity in 2011 and Affinity essentially doubling its money.

The business, Australia’s largest fresh meat processor with brands like Primo, Hans and Beehive, has been acquired by a Brazilian family-owned business, the world’s largest fresh meat processor, JBS. JBS has significant operations here, describing itself as Australia’s largest meat packer, marketer and exporter.

While there had been speculation that Primo might be floated, it wasn’t on the market. JBS approached the partners seeking to acquire the business. The sheer size of the offer, and the potential for further growth of the business under JBS, was too good to refuse.

Primo was founded by Paul Lederer and other family members in Sydney at a site at Homebush that apparently generated a windfall for them and the business, when Homebush became the site of the Sydney Olympics.

The proceeds from selling the site enabled the family to build a new state-of-the-art facility at Chullora in 1998. They subsequently expanded rapidly, acquiring abattoirs in South Australia and Victoria.

Apparently, the sale to Affinity wasn’t about cashing out the family’s interest but introducing new capital and financial expertise to accelerate Primo’s growth.

It’s is noteworthy, given the poor headlines that private equity sometimes generates, that the game plan since it acquired control of Primo has been driven by growth rather than cost-cutting. Primo is a much larger and better business today than it was in 2011.

Since Affinity bought its interest the business has expanded rapidly, acquiring the Hans and New Zealand’s Premier Beehive businesses and opening an office in Shanghai that has helped generate about $130m of export income. It built Australia’s largest food manufacturing plant in Brisbane. Most of the expansion has been debt-funded.

For JBS, the acquisition will give it exposure to Primo’s pork-related and value-added products, where JBS is under-weight, and an ability to leverage its own global distribution network to grow the Primo business. JBS, owned by the Batista family, operates about 300 production facilities around the world and operates in more than 100 different markets.

While it has paid a very big price for Primo, its own history has been one of rapid growth, fuelled by successful acquisitions.

The acquisition is one of a spate that has occurred within the Australian food and agribusiness sectors predicated on growing demand within Asia, and China in particular, as rising living standards and swelling middle classes see populations move up the protein curve.