Deal in Focus: Erhvervsinvest scoops cool IRR on Premier Is exit

Erhvervsinvest's sale of Premier Is to Latvian ice-cream maker and dairy producer Food Union marks the end of the GP's seven-year ownership of the company. The exit landed Erhvervsinvest with a double-digit IRR, though the figure was somewhat negatively impacted by the long holding period, according to the GP's managing partner Thomas Marstrand.

"The multiple is on the slightly lower end of how we've historically performed, but because of the investment's size, we are happy with how the deal panned out," says Marstrand, comparing the exit's return to Erhvervsinvest's first fund, a 2004-vintage vehicle that when fully realised returned 2.9x money and 29% IRR. Marstrand says the total investment in Premier Is was relatively large for the size of Erhvervsinvest II, the GP's 2007-vintage €100m vehicle.

Erhvervsinvest's ownership of Premier Is began in 2008, with the buyout of Mejerigården, which produced ice cream under the Polar Is brand. The deal fell into place following an exclusive process, in which the GP had approached the Sørensen family.

Mejerigården was owned by the third generation of the family that had founded it in 1927, and was being managed by the second generation, says Marstrand. "They'd completed the financial succession a few years prior, and hoped the next generation of the family would want to continue to manage the business. When we got involved, the eldest brother had just turned 70, and their children did not want to succeed them, so they felt it was the right thing to sell the company," he says.

Strategic shift
Erhvervsinvest had intended to implement a strategy of regional growth for Mejerigården – focusing on Germany and Sweden – but the GP was approached by Nestlé not long after the acquisition and was offered the opportunity to carve out the Swiss giant's Danish ice-cream operation, Premier Is.

The competitor was carved out near the one-year anniversary of Erhvervsinvest's buyout of Mejerigården, and the strategy was changed from focusing on expansion to merging the two companies and operational improvements. Efforts by the GP included re-domiciling production from Nestlé's factories in Europe, as Premier Is did not have production capacities in Denmark.

The company's lorry fleet was replaced, production facilities were improved and product design was updated, Marstrand says: "We have made several working-capital-heavy investments that have created a lot of value."

Hundreds and thousands
In Denmark, the market for ice cream is characterised by a high level of consolidation. Prior to Mejerigården's merger with Premier Is, there were four major ice-cream makers in the Danish market. Not long after Premier Is and Polar Is merged, Unilever's Frisko (Wall's in the UK) bought Diplom Is and the market effectively became dominated by two players.

As such, the operational focus was also a good fit for the characteristics of the market, says Marstrand: "The ice cream market is not a growth market, so it is important to be skilled at finely tuning your business. The market is stable at best. While it may be declining in volume, consumers are spending more on it, so there is a strong focus on product development to ensure they are attractive to the consumers."

When it came time to exit, Erhvervsinvest set a structured process in motion, and saw interest in Premier Is from both trade and private equity. Latvian dairy and ice cream maker Food Union eventually won out, and Premier Is will continue to be led by existing management under the Riga-headquartered company's ownership.

Erhvervsinvest's Marstrand says the new owner is a good fit for Premier Is: "We wanted owners who had an interest in running the company and having a Danish production capacity, rather than closing it down, and Food Union has a respect for the capabilities of Premier Is. It understands ice cream production and the market. It knows about food brands, understands the position Premier Is has in Denmark, and the two have complementary management teams, so it was a very good match."

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