Fivefold profit for private equity house as Premier buys Quorn for £172m

Premier Foods has pulled off its biggest acquisition to date, buying Quorn, the meat alternative, for £172m from Montagu Private Equity in a deal that has delivered a five-fold profit for the venture capital group.

Premier Foods has pulled off its biggest acquisition to date, buying Quorn, the meat alternative, for £172m from Montagu Private Equity in a deal that has delivered a five-fold profit for the venture capital group.

Montagu bought Quorn in 2003 from AstraZeneca, the drugs giant whose scientists developed the product in the 1980s from mycoproteins before launching it commercially in 1994.

Montague paid £60m for the brand, which included £35m of debt from HSBC. Its £25m equity investment is now worth about £127m - the remaining £45m of Premier's purchase price is debt which is being repaid. Premier has bought a food product with retail sales valued at £95m, bigger than individual brands such as Heinz Tomato Ketchup at £83m and Kellogg's Cornflakes at £71m. Quorn is only £5m short of the £95m of sales generated by Mars bars each year.

Despite its progress so far - the brand has averaged annual sales growth of 7 per cent over the past five years - Premier remains convinced its private equity owners have left the business with plenty of potential to grow even more.

Robert Schofield, the chief executive of Premier, said: "We are going to target it at wider consumers. We are going to de-fad it. It's a product that's more about general health than vegetarianism." Quorn will already be Premier's biggest single brand when the deal completes but a big increase in sales is expected to come from its new parent's ability to persuade all the large supermarket chains to stock it and increase its distribution through convenience stores and professional food service companies.

Premier already owns a string of "must stock" consumer staples such as Branston Pickle, Sun-Pat peanut butter and Chivers jam. It intends to use its strength in this area to boost Quorn's availability.

The deal is also the most expensive that Premier has announced. The price is 11 times Quorn's £15.6m of earnings before interest, tax, depreciation and amortisation. ButMr Schofield said the deal would produce synergies of £4m-a-year and once these were taken into account, along with Quorn's growth prospects, the deal was more comparable to its previous acquisition of Bird's Custard.

Premier's shares jumped 7 per cent to 329p yesterday. Mark Lynch, a food analyst at Goldman Sachs, said: "This is in line with premier's established track record of making bolt-on acquisitions which should accrete to earnings ... The acquisition appears sensible from the details so far, and we expect Premier shares to react positively."

Premier appears to have shaken off the recent concern surrounding Sudan 1, a potentially poisonous food dye found in some of its Worcester sauce.