Deal focus: Quadrant finds a taste for candy

A 2015 pet food play paved the way for Quadrant Private Equity's latest acquisition. The GP's purchase of a majority stake in Australian candy maker Darrell Lea at a valuation of A$200 million ($160 million) arrived via Tony Quinn, the entrepreneur who founded VIP Petfoods and sold it to Quadrant three years ago.

"Tony's an incredibly competent entrepreneur," says Chris Hadley, executive chairman of Quadrant. "He can grow a business from a certain stage, and when he's done what his skill base allows him to do he's smart enough to move it to more professional capital that can take it to another level."

Quinn's involvement with Darrell Lea dates to 2012, when the family-owned company – founded in 1927 and best known for its licorice and chocolate products – entered voluntary administration amid mounting debts. Quinn and his wife Christina acquired the business with an eye to restoring it to profitability.

During their ownership, the Quinns focused on streamlining the business. Their most notable change was to close all 69 of Darrell Lea's retail outlets, which they saw as an unnecessary distraction from its core identity as a manufacturer. Darrell Lea also shut down less profitable product lines and opened a new production facility in New South Wales in addition to its plant in Sydney.

The sale of VIP Petfoods to Quadrant concluded amid these turnaround efforts, an experience that laid the groundwork for the Darrell Lea deal. The private equity firm recognized that the hard work of de-risking was essentially complete, with mostly good stewardship required to drive growth, and it convinced the Quinns that it was best positioned to continue on a larger scale.

"It's a sector that we consider attractive, because it's quite defensible," Hadley says. "Confectionery is a very large market, dominated by grocers, and we have some experience with that via companies like VIP, where we sold a large amount of product to grocers such as Kohl's and Aldi in Australia. In addition it's a strong brand with very strong resonance with consumers."

Darrell Lea already exports to the US, Canada, and the UK, and Quadrant sees these markets as ripe for expansion. It plans to seek acquisitions that reflect the company's strengths in various markets. In Australia, the focus will be on opportunities outside the core licorice and chocolate business, while purchases overseas – where Darrell Lea's presence is currently limited – will concentrate on brand building.

Darrell Lea is also the inaugural investment from Quadrant's latest fund, which closed last month at A$1.15 billion. Hadley sees the company as representative of the kind of deals the vehicle will pursue: stable, well-run businesses with clear paths to sustainable growth. "We see the business as easily tradeable, with a strong brand, with potential for exiting through an IPO, trade or secondary sale," he adds. "We're very confident in being able to grow and exit the business at some point."   

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• Topics
• Australasia
• Buyouts
• Consumer
• Australia
• Quadrant Private Equity