An NZ private equity firm is on a food business buying binge, buying McCain’s dessert and baked goods brand Sara Lee after it snaffled Original Foods Baking Co in June.

The South Island Office (SIO) acquired the New Zealand wholesale bakery business in June for $30 million. 

The investment firm has now also purchased Australian brand Sara Lee.

The South Island Office partner Tom Elworthy said the Sara Lee deal was “quite big”. While Elworthy wouldn’t put a number on it he pointed to the company's previous sale price. McCain purchased Sara Lee in 2012 for more than A$80m. Earnings before interest, tax, depreciation and amortisation were about A$15m, Elworthy said.

Sara Lee reportedly had A$96m in sales in the 2020 financial year.

Elworthy said extracting Sara Lee from the McCain business added a layer of complexity to the deal because it was "fully integrated with the McCain ecosystem" but it had plans in place to manage that process over the next six months.

He said both businesses had great products and management teams and culturally were a good fit.

"It's such a great match for us."

SIO bought Original Foods from founders Mike Sproule and Jane Mayell this year. It is a well-known brand in NZ supermarkets for its cakes and slices which are sold in bakery sections and is based in Wigram, Christchurch. It also has a food service business that supplies baked goods to small businesses such as cafes and to suppliers including Bidfood.

The Australian Sara Lee operation was founded in 1971 and has a plant in Lismore, Australia. It is best known for its frozen desserts which are sold in supermarkets on both sides of the Tasman.

The purchase will bring opportunities for Original to sell its products to Australian stockists of the Sara Lee brand, he said, and could accelerate growth through capacity in the plant in Australia. The company has been exporting Original Foods products to Australia for about five years.

Bakery backers

Original Foods' CEO and shareholder Anthony Honeybone. (Image: Supplied)

The purchase is being funded through a credit fund out of Australia with IFM Investors, with the same backers as the Original Foods deal, Elworthy said, which included the SIO partners Sam Rofe, Rob Farrell, James Stringer and Elworthy. 

Other investors include Rabobank chair and Scales Corporation managing director Andrew Borland, Original Foods chief executive Anthony Honeybone, Neil Brown and Mark Rutherford.

Elworthy said the two baking businesses were highly complementary with only small areas of overlap.

Sara Lee’s general manager Mark Mackaness will be group CEO, but the companies will continue to be run separately.

The South Island Office was founded in 2019 and has a sister company, Box 112, a private equity partnership focused on the South Island. Box 112 has been involved in a number of building restorations in Christchurch including the Public Trust Office building.

Sara Lee had about 220 staff, while Original had just under 200 employees, Honeybone said.

He said Sara Lee had products that supported Original’s offering like cheesecakes, ice creams and danishes.

“We’ve had really good feedback from our customers,” he said.

“We want to get stronger in that Australian market. Having someone who is already incredibly strong and established makes those distribution lines and those conversations and relationships so much easier.”

He said Sara Lee had tasted the Original products and were confident selling them into the Australian market. Over the past couple of years, the company had ramped up sales across the Tasman.

“It’s a really easy merger.”

The company also exported to the Pacific Islands. 

As Sara Lee would smooth the path for Original’s products in Australia, so would Original for the Sara Lee-branded goods, Honeybone said.

He said Sara Lee would keep its name as it had a high profile in Australia and was an Australian "icon".

“They’re both really good brands and we want to keep them operating.”

A sale with a twist

The business will end up with a group structure across the top of the two, with Mackaness leading the group along with other senior executives, Honeybone said.

He said the Sara Lee plant was more automated than that of Original, which had a plant of a small-to-medium sized business, but that was “growing rapidly”.

The Original Foods business was about 40% food service and the rest retail, he said.

Honeybone said Original had been extremely well run by its founders, Sproule and Mayell, but Mayell’s long-term illness had meant the pair wanted to find a buyer.

Honeybone was brought into the business on the first day of lockdown last year to help run it and establish an executive team.

He said there were a number of offers for the business, with the sale finally going ahead to SIO on the same day that Mayell died.

“It was really sad … and bittersweet. It was something on her bucket list that she wanted to see happen. It was a really tough, bittersweet day.”

On Wednesday Sproule declined to comment, saying he had sold the business and “would be shot” if he said anything.

As for the new owners, The South Island Office, Elworthy said he expected the firm would do more deals before the end of the year.

The partners were always looking for good businesses that had good management teams, he said.

The pandemic had prompted business owners, like many people, to think about their lives and that meant there were opportunities for SIO as owners considered exiting, Elworthy said.

Elworthy said the partners "like the food business" and baking is one of them but there were other opportunities. Covid had caused uncertainty and risk for other investors, he said, which SIO would look to capitalise on.

"We are looking for something a little bit different ... something with a twist."