Harris Williams recently advised Indulge Desserts, a portfolio company of AUA Private Equity Partners, LLC, on its sale to Emmi Group. Here, we discuss what makes the bakery space appealing to buyers, the factors differentiating Indulge from other companies, and our advice for other buyers active in the subsector.
What’s putting the bakery space on buyers’ radar right now?
Cash: One of the most significant factors is growing consumer demand for more indulgent, authentic products. Consumer tastes have shifted away from artificial ingredients and pre-packaged items sold in the center of the store. They want more decadent, fresher products that look and taste like they were made in the back of a restaurant or the in-store bakery. The best bakery companies are fully aligned with that shift in consumer preference, providing on-trend, authentic foods.
Wilczek: We’re also seeing today’s consumers, especially younger ones, be more willing to grab a meal or snack from the prepared food section in a grocery store compared to 10 or 15 years ago. There’s been a real blurring of lines between quick-service restaurants and grocery stores. You can see this trend in the amount of square feet grocery chains are now dedicating to the perimeter of the store, with a vast array of products available in grab-and-go packaging.
What is Indulge Desserts, and what makes it a great asset within the bakery subsector?
Cash: Indulge makes premium gourmet desserts, offering a variety of American and international products to the foodservice and retail markets. The company’s history is firmly rooted in foodservice, and like most successful suppliers to the sector, it leads with innovation and an R&D team that works closely with professional chefs to develop on-trend products for the menu.
Poth: It also has a legacy of quality and authenticity, using imported ingredients from European suppliers. That appealed strongly to Emmi, its buyer, which was looking for a quality-focused partner with strong customer relationships to help it accelerate its growth in the U.S. Indulge brought Emmi a broader list of retail and foodservice customers, a chef-focused R&D team, and a flexible manufacturing base.
Wilczek: The growth potential Andreas just mentioned was essential to this deal. Indulge had a truly blue-chip customer base, as well as relationships with top chefs across the country. The company’s customers depended on it to bring them the latest concepts from around the world. These product development capabilities created incredibly sticky relationships. In fact, the company’s growth has consistently outpaced the broader industry under AUA’s ownership.
What’s your guidance for other buyers and sellers looking to replicate the success of this transaction?
Poth: First, I’d say it’s a good idea—very stable, long-term trends are supporting growth in the subsector, and it’s a great time to be getting more involved. And, as this example shows, M&A is the best way to accelerate your market entry into new geographies. Investors are looking for platform investments, and Indulge has the potential to act as such for Emmi and its dessert business. Likewise, sellers should know that there’s considerable appetite among European strategic buyers for great food companies in the U.S. Based on our ongoing, intensive dialogues with strategic buyers across Europe, we expect to see more transactions like this going forward.
Cash: Buyers should keep in mind that customers are looking for partners, not just suppliers. What Indulge does so well is go the extra mile to become that trusted partner, from new concepts for desserts to easier, lower-touch preparation to its ability to serve national retail chains. All of that requires a focus on innovation and supply chain sophistication.
The bakery sector continues to be ripe for consolidation. There are many smaller, specialty players in local markets with strong customer relationships, proven manufacturing capabilities and great products. The winners going forward will combine the strengths of the best of those players into platforms of scale that can become valuable partners to retailers and foodservice companies.
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Published October 2020