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New York private equity firm Paine Schwartz Partners is closing in on a $1.62 billion acquisition of Costa Group that will be closely scrutinised by Macquarie as a major landlord to the citrus, berry and avocado producer.

Costa, Australia’s biggest horticultural company, confirmed on Tuesday it received a takeover offer from Paine pitched at $3.50 a share at the end of May, after the approach was revealed in The Australian Financial Review’s Street Talk column.

The Costa share price jumped almost 12 per cent to $3.31.

However, the grower, packer and marketer of fresh fruit and vegetables hosed down speculation a deal would be finalised within days. Costa said talks with Paine were expected to continue through most of July on a potential deal that leaves the door open for shareholders to pocket any interim dividend up to 4¢-a-share declared for the six-month period ended on July 2.

Paine, which floated Costa in 2015, acquired a near 14 per cent stake in Costa last October at a price of $2.60 a share, and started talks in April about a takeover offer in the range of $3.20 to $3.30 a share.

It followed up with a confidential and non-binding proposal at $3.50 a share on May 31.

Costa said Paine confirmed its intention to push ahead on Tuesday on the back of four weeks of due diligence. The offer tabled represents a 34.6 per cent premium on the price Paine paid for its stake back in October.

Macquarie, which in 2021 prevailed in a bidding war for Costa’s fruit orchard landlord Vitalharvest, is understood to be keeping a close eye on any change of control.

Macquarie Infrastructure and Real Assets owns four berry farms in NSW and Tasmania and three in South Australia’s Riverland leased to Costa. MIRA is also a landlord for Costa’s avocado orchards.

Wilsons Advisory head of research James Ferrier speculated that a focus of Paine’s interest might be around Costa’s berry varieties and IP in that area given the mix of agricultural technology businesses already in its portfolio.

“The berry IP is of course it’s a very capital light asset whereas the domestic farms, particularly the more industrialised production categories like tomatoes and mushrooms are very capital intensive,” he said.

Mr Ferrier said it was possible that Paine would look to bring in a partner seeking an annuity stream from Costa assets.

Morgans analyst Belinda Moore said Paine’s indicative offer was a great outcome for Costa shareholders given the “execution risk involved in delivering its growth projects and targeted returns over the next few years”, in a note to clients.

Morgans suggested the Costa earnings profile was too volatile for the listed market.

Wilsons judged the offer was at a hefty premium to the Costa share price before Paine made its presence felt in re-joining the register in October. However, Wilsons noted that Costa’s investments in boosting production over the past five years had not yet been reflected in earnings growth, and on that basis it could be argued the Paine bid undervalued Costa.

Mr Ferrier said Costa was in line for a big uplift in earnings based on consensus forecasts for the full year. “That’s primarily based on recovery in citrus yields and citrus quality that were impacted last year essentially by weather and weather related disease,” he said.

Paine is understood to have locked in approval from the Foreign Investment Review Board but may need to restart that process if co-investors become involved. The Costa board granted Paine an eight-week period of non-exclusive due diligence from June 6.

The deal comes amid a backdrop of rising supply and strong export demand which will drive record horticultural production value despite a slight easing of prices, according to the Australian agriculture mid-year outlook released on Tuesday by Bendigo and Adelaide Bank-owned Rural Bank.

Rural Bank tipped above-average fruit and vegetable production over the next six months and said relatively steady domestic consumption and high production costs would keep fresh fruit and vegetable prices above longer-term averages.

In a trading update in May that coincided with the company’s annual meeting, Costa said a return to warmer temperatures and lower rainfall was a positive for its operations, which revolve around growing citrus, berries, avocado, tomatoes, table grapes and mushrooms, after three consecutive La Nina weather events.

Costa aims to expand its footprint in China to 700 planted hectares by 2026.

The Paine bid for Costa comes with United Malt, another listed agriculture stock, set to disappear from the ASX via a $1.5 billion buyout offer from Malteries Soufflet.

The Costa family, who founded the business in 1959, allowed Paine – then based in Chicago and known as Paine & Partners – on board as a private equity partner in 2011.

The move paved the way for growth of the business and the 2015 float of the company.

Australian confectioner Ernest Hillier Chocolates has appointed voluntary administrators to sell off its business and related entities.

Established in 1914, the company is Australia’s oldest chocolate brand and operates a manufacturing facility in Coburg, Victoria. Its Ernest Hillier and Newman’s brands have been stocked across supermarkets for many years.

Administrators Alan Walker and Glenn Livingstone from WLP Restructuring Partners are seeking urgent expressions of interest from interested parties who could recapitalise or acquire the business’ assets.

Partner Alan Walker, said it is “unfortunate” that such a “storied” chocolate brand has encountered distress amid rising operating costs.

“We are working closely with all affected parties as we move with urgency to understand the business’s affairs and find a suitable buyer or investor.

“While this process is underway, we have had to make the unfortunate decision to cease manufacturing activity and stand down employees at this stage.”

He added the brand’s existing relationships with large multi-national food and beverage providers alongside its supply agreements may “appeal to potential suitors”.

The first statutory meeting of creditors will be held on June 30.

Metcash boss Doug Jones says IGA stores are taking the fight to Coles and Woolworths, offering Australian households a “real value” alternative to the two supermarket giants.

Jones said successive interest rate rises and increasing grocery prices had started to affect shopper behaviour, with IGA well-placed to capitalise on customers looking for better deals and a wider range of products.

“We think our network offers real value when it comes to products, [as well as] well-staffed and very enticing deli areas – we think that stands us in very good stead,” he said.

“The customer value proposition in an IGA is fundamentally different. The community-based store resonates with Australians. Because the managers or the owners are from and of the community, they often source products that are particularly relevant to their local communities.”

Shares in the ASX-listed grocery wholesaler shot up as much as 8 per cent on Monday after it beat market expectations with a 7.6 per cent jump in profits to $259 million in the 12 months to April 30.

Metcash’s full-year revenues increased by 6.2 per cent to $15.8 billion, with the company reporting it had managed to hold on to most of the shoppers who relied on local IGA supermarkets during the COVID lockdowns.

“As they’ve rediscovered their community stores, they have really liked what they’ve seen,” Jones said.

As the battle for consumer wallets intensifies, he said Metcash wanted to remind shoppers that there was choice in the grocery sector beyond the major supermarkets.

The company’s management says IGA has made significant progress narrowing the product price gap between itself and its competitors over the past two years, and has expanded its price match program to put hundreds of products in line with Coles and Woolworths shelf pricing each week.

Metcash is also competing against retail giants in the hardware and liquor spaces, through its operation of brands such as Total Tools, Mitre 10, Cellarbrations and The Bottle-O.

The company’s hardware sales jumped by 10.6 per cent to $3.4 billion for the year, and are now the biggest contributor to overall earnings before tax, making up 42 per cent.

Jones said that while home building trends were starting to normalise, growing demand for smaller renovation programs benefited the business given its focus on serving small and medium building customers.

Metcash’s DIY business, which accounts for about one-third of its hardware segment, was also staying competitive on product pricing.

“We want to remind shoppers that there’s a choice – and we recognise that like in food and liquor, they have a choice as to how they manage their budgets. We want to be part of their choice set.”

MST Marquee analyst Craig Woolford said the latest numbers represented a resilient performance from the company.

“Metcash has delivered a solid FY23 result and demonstrated it has retained the majority of its customer wins during COVID,” he said in a note to clients.

IGA owner Metcash says sales across all retail pillars remain “strong” and the business is actively managing increased cost pressures.

For the year to April 30, group revenue rose 6.2 per cent to $15.8 billion while underlying tax-paid profit was up 4.6 per cent to $307.5 million.

Group CEO, Doug Jones, said both sales and earnings were at “record levels” as the business continued to face additional challenges associated with rate increases and cost of living.

“Our focus on further improving the competitiveness of our independent retail networks, as well as the success of our strategic acquisitions, particularly Total Tools, have been key factors in the strong performance.”

Total food sales grew 2.8 per cent to $9.6 billion on a normalised basis while supermarket sales rose 2.1 per cent and convenience store sales were up 9.7 per cent.

Liquor sales grew 8.3 per cent to $5.1 billion driven by strong demand “buoyed” by improved competitiveness, a preference for local shopping and at-home consumption trends.

The business opened 39 new IGA stores during the year and says it is “well positioned” to deliver growth and superior returns to shareholders.

For the first seven weeks of FY24, group sales have improved by 2.3 per cent, however, ongoing interest rate hikes have impacted consumer confidence across its retail networks.

Nespresso has named Stefan Vermeulen as its new MD for Oceania, effective next month. Vermeulen will succeed Jean-Mark Dragoli, who will move forward as the global head of Nespresso Authorised Brands in Switzerland.

The company said Vermeulen brings a wealth of brand knowledge and local experience, having held leadership positions within Nespresso for more than 12 years, including leading the team in New Zealand as MD and four as head of Nespresso Australia’s professional business. 

During his tenure, Vermeulen helped drive substantial growth in New Zealand by introducing the Vertuo system to the market in 2021, expanding Nespresso’s coffee range, and spearheading local sustainability initiatives.

These efforts included reforestation projects, support for educational programs on the circular economy, and strengthening the local recycling program.

Sharing his vision for the business, Vermeulen said he believes that coffee can be a force of good for people, communities, and the planet. 

“The more we drive sustainable growth, the more we can have a positive impact as a brand and organisation through the entire value chain,” he explained.

“Sustainability will also remain at the core of our strategy as we explore new ways to engage more consumers with our recycling program and introduce initiatives to help us on our journey towards net zero and improve as a B Corp.”  

Meanwhile, under Dragoli’s leadership, the company said it had benefited from product innovations and services that resonated with local consumers – from Aussie-inspired coffee blends to personalisation and expanded delivery services. 

His prioritisation of local sustainability initiatives has also helped the business deliver on its B Corp commitments and the broader purpose of using coffee as a force for good.

Key projects include:

• An innovative kerbside recycling trial.
• A Recycling Rewards pilot.
• The launch of the company’s first Australian StartCup Challenge supporting circular start-ups and SMEs.
• A partnership with Greening Australia to build resilience in local habitats in the face of climate change.  

Welcoming the new MD, Dragoli said Vermeulen deeply understands the local coffee culture, customer preferences and the nuances in each market. 

“Having led and built relationships with our teams on both sides of the Tasman over the last seven years, Stefan has already established a strong foundation for success in the Oceania market,” he concluded.

“I have no doubt he will do great things in this role, leading with our employees, customers and business partners front of mind.” 

Collins Foods, the ASX-listed operator of KFC and Taco Bell chains in Australia, and KFC in Europe – broke the US$1 billion sales threshold in its home market last year.

For the year to April 30, revenue from continuing operations rose by 14.2 per cent to $1.35 billion with growth across all business units.

KFC Australia’s revenue grew 10 per cent to $1.05 billion when compared to the prior corresponding period while same-store sale growth was up 5.8 per cent, driven by significant e-commerce growth.

Delivery, web and app sales contributed nearly a quarter of all sales in the second half in addition to increased accessibility through partnerships with major aggregators, including Uber Eats.

KFC’s Europe division delivered double-digit sales growth of $249.5 million, up 31 per cent while same-store sales were up 13.9 per cent.

Taco Bell’s revenue increased 36.1 per cent to $48.7 million, with the addition of eight new restaurants during the year.

Underlying tax-paid profit from continuing operations fell to $51.9 million while underlying EBITDA fell to $205.1 million.

In a results filing, the company said it expects inflationary pressures to remain for much of the next year, however, plans to maintain its long-term growth strategies.

That strategy includes a trial of click-and-collect at its Queensland and Victorian restaurants and the steady rollout through UberEats which is contributing to increased brand awareness.

Drew O’Malley, MD and CEO of Collins Foods, commended KFC’s strong store sales performance in Australia and Europe in the face of challenging economic conditions.

“Whilst inflationary pressures have played into our profitability in the short-term, our long-term growth plans remain on track, and we will continue to prioritise providing exceptional value across each of our brands as a primary driver of customer retention and engagement.”

Therese Frangie has been named Mad Mex’s CEO as founder and former chief Clovis Young moves on to become MD.

Frangie, the former COO of the business, will now look after the day-to-day operations of the company and focus on growing the brand into more stores.

Of her appointment, Frangie said she will be “laser-focused” on delivering sustainable growth and expansion while not wavering from operational excellence.

Meanwhile, Clovis Young who started Mad Mex in 2007 said it was the “right time” for Frangie to “officially step into the CEO role”.

“As the business size and scale increase, Therese has the operational excellence and leadership capabilities to run the day-to-day business.

“She has been a driving force over the past six years and knows the business inside and out. This transition in the role allows me to stay connected to the strategic goals of Mad Mex and better leverages my entrepreneurial strengths,” said Young.

The proportion of Australians who consume alcohol has increased since the pre-pandemic period, says market research company Roy Morgan.

In the year to March, 13,709,000 Australians – or 67.6 per cent of people aged 18 years and over – consumed alcohol in an average four-week period when compared to 66.3 per cent in the year to March 2020.

The increase is driven by the ready-to-drink (RTDs) category which registered an increase in consumption from 10.8 per cent pre-pandemic to 20.8 per cent now.

Consumption of wine, the most popular alcohol during the pandemic, has increased from 41 per cent pre-pandemic to 43.9 per cent in the year to March.

Meanwhile, beer has lost the momentum it had gained during the early stages of the pandemic. Now, fewer than a third of Australians – or 32.2 per cent – consume beer, down from 37.6 per cent pre-pandemic.

Spirits consumption has also recorded a meagre decline of 27.5 per cent from 28.7 per cent pre-pandemic.

Roy Morgan CEO, Michele Levine, said alcohol consumption amongst the Australian population is now “reasserting itself”.

“The standout performer of the last few years has been RTDs which have kept increasing despite the ending of lockdowns and all pandemic-related restrictions,” said Levine.

“The emerging trends suggest consumption of wine and spirits looks set to return to pre-pandemic levels while RTDs such as vodka, gin, bourbon and rum have been on a sharp rise in recent years and that trend could well continue at the expense of beer consumption which has continued its long-term decline.”

Eric Morris will step down as chief executive of Larry Kestelman’s Brand Collective – the name behind Superdry, Clarks and Volley – after 18 years in the top job, with former David Jones boss David Thomas taking the helm.

Mr Morris was appointed to lead the Brand Collective business when womenswear retailer The PAS Group merged with Brand Collective in March 2022. Rich List property developer Mr Kestelman snapped up Brand Collective from Anchorage Capital Partners, which owns Shoes & Sox, Shoe Warehouse and Volleys, in 2021. He bought PAS Group after it fell into administration the year prior.

“It has truly been an amazing journey, from the formation of The PAS Group in 2005 following the acquisition of the Yarra Trail business by private equity, to my involvement in each subsequent acquisition of the PAS brands and to the delivery of the business as it stands today,” said Mr Morris, who will take a non-executive director seat and advisory role within the Brand Collective business.

Under his management, the enlarged Brand Collective business expanded its portfolio, adding Reebok, Replay and Canada Goose.

Mr Thomas headed up Country Road Group, as well as a short stint as CEO of David Jones, and stepped down from running Peter Lew’s Brandbank Group, which owns Seed Heritage and All Kinds, after four years.

“I am delighted to join Brand Collective and to work with the team to enhance business performance and deliver on future growth opportunities. The team have created a strong framework for future growth, and I look forward to this new challenge,” said Mr Thomas.

Executive chairman Mr Kestelman said the company is positioned for a prosperous future as the business evaluates growth opportunities.

“I would like to thank Eric for what he has done in building the business as well as his dedication and tenure, and I look forward to David’s future leadership and contribution,” he said.

Brand Collective’s parent company, Queens Lane Capital, was founded and is controlled by internet entrepreneur-turned-property investor Mr Kestelman, Boris Rozenvasser and Nick Tsoumanis.

Brand Collective is one of Australia’s biggest multi-brand apparel, footwear, and sports businesses, with a stable of 24 brands, over 300 retail stores and 14 e-commerce sites.

It also operates Designworks, the wholesale arm responsible for the development and distribution of private label and licensed sports and character brands such as Bluey.

It’s time to take the makeup off at Sydney private equity firm Crescent Capital Partners.

Street Talk can reveal Crescent has mandated Ankura Consulting Australia to find a buyer for its beauty and makeup business, Nude by Nature, after nearly a decade of ownership.

Nude by Nature lays claim to being Australia’s No.1 mineral makeup brand that rings up a sale every 27 seconds from the range. Its product offering covers the whole gamut – foundations, BB cream, mascaras, brushes – and is marketed as 100 per cent clean and natural.

Despite its clean-ingredients push, it’s not a niche player but rubs shoulders with juggernauts like L’Oréal in the makeup aisles of Chemist Warehouse, Priceline, Myer, Target, Big W and 1200 independent pharmacies in Australia and New Zealand.

The homegrown business is the fifth-largest seller at pharmacies – behind multi-nationals Maybelline, Revlon, L’Oréal and Rimmel – where nearly 45 per cent of the population does its cosmetics and beauty shopping.

Its mineral foundation sells for $42.95 a pop, while brushes start at $16.95 on a full-price basis. It claims to be “cleaner” than higher-priced competitors and is ready to be scaled up locally and overseas, according to the sell-side pitch.

Ankura is preparing Nude by Nature for a 100 per cent sale, and would take expressions of interest before commencing the sale process.

Slap on the lipstick, COVID is over

Crescent Capital Partners has pressed play on the sale as discretionary retail straddles a tricky divide – on one side, sales in categories like makeup and movie cinemas are recovering from lockdowns but on the other, rate hikes are being tipped to force shut shoppers’ wallets again. The PE firm has also redrawn it territory to become a leader in healthcare assets. 

The preliminary sales pitch has urged prospective buyers to think of Nude by Nature’s double-digit EBITDA margins (detailed financials were not offered at this stage), track record of growing profitably, large footprint and future growth opportunities.

The latter, it said, would come from pushing further into digital channels and new geographies.

Nude by Nature’s chief executive officer Mark Thompson, who has been in the role since 2014, sees merit in launching again into China and is preparing a US foray in the 2025 financial year. The management has experience in taking its products global, and is already driving revenues from launches in Canada’s Shoppers Mart and Europe’s Nocibé, Douglas and Karstadt.

Lastly, it has a pipeline of products ready to launch, including colour cosmetics, clean baby care and teen-focused products, prospective new owners were told.

As a comparable deal, Melbourne-based high-end skincare brand Aesop fetched a $US2.53 billion ($3.7 billion) enterprise valuation in a sale to L’Oréal in April. Aesop made $US537 million in fiscal 2022 and had its highest-ever profit margin at 25 per cent at the time of the sale.