Back in October 2015 Seneca backed Foodpack Limited in its acquisition of the trade and assets of Kapak Foods Limited from the Administrator FRP Advisory LLP.
The St Helens based business was a food manufacturing and packing specialist that had run into severe cash flow difficulties culminating in it facing the possibility of being unable to pay its 150 employees at the month end.
This created a firm deadline that the Seneca team had to meet in order to maintain production and therefore have any chance of saving this ailing business. Undertaking due diligence and raising the finance to complete the deal in a very short timeframe, whilst a difficult task, also had the benefit of reducing the number of competing bidders, as many did not have the experience or capability to move so quickly.
This type of complex time pressured scenario is where Seneca is able to excel and truly differentiate itself by bringing together the various teams and products from within the group to work on the deal.
We introduced Anthony Hitchen to the deal, a food industry veteran, who was quickly able to assemble a management team to take the business forward and work through the key areas of commercial due diligence.
The Seneca Corporate Finance team worked on the financial due diligence and financial forecasts alongside the Equity Investment team that led the negotiations with key stakeholders in the business, particularly the largest customers, whose ongoing support was essential.
In tandem we had the challenge of funding the deal, which is difficult in a market were banks are cautious, not supportive of companies exiting Administration and in general have become very cumbersome in response times.
Cutting through this we were able to call on strong supportive relationships in the banking sector, with Secure Trust Bank providing working capital facilities but as they could not move quickly enough with a loan against the Freehold Property, the Seneca debt fund was able to step in and provide a bridging loan which sat behind our equity investment. This bridging loan was refinanced within 6 months and was an essential component in getting the deal done, whilst also providing a solid secured return for our debt fund.
As anticipated, completing the deal whilst a significant challenge in itself, was to be the easy part.
This was a business we were buying from an Administrator with all the unavoidable issues that brings with it – from concerned employees to highly disgruntled suppliers wanting their products back and refusing to maintain supplies and customers who are inevitably looking elsewhere.
Managing all these stakeholders was a huge task but we were able to work alongside Anthony and his team for an intense few months immediately post deal until matters eventually began to calm down and we could move from “rescue mode”, into “recovery mode” pending “growth mode” and exit planning.
The Exit – Was It Worth It?
Whilst the team at Seneca and within Foodpack are rightly proud of the fact we saved the business from Administration and secured 150 jobs, ultimately when we invest capital we are judged on the returns we make for our investors, which means we need to sell the business or our stake.
By utilising our network, just over 3 years from making the original investment (which is important from an EIS perspective), Seneca managed the sale of the business to Integrated Packaging Services Ltd (“IPS”) the UK market leading co-packer.
As with the original acquisition, we were able to utilise the depth of experience within Seneca to achieve this successful exit with our in-house corporate finance resource.
The sale is a great deal for Seneca and a great deal for IPS and we are delighted to be passing it on to such a high quality operator who are perfectly positioned to take it forward into its next growth phase.
Whilst the last three years with Foodpack have brought many highs and lows, the end result is a huge success on so many levels and was definitely worth the effort. As ever the time to reflect is short and we are already building on the experiences gained and busy working on our next investments.
Please note that this is a case study of a successful investment. It is important to be aware that not all investments in smaller unquoted companies are successful and investors must understand the risks inherent in such investing. If you are in any doubt then you must speak to a financial adviser. Investments in unquoted companies could put some or all of your capital at risk.