News & Analysis

Gresham to profit from UK hunger for pasties

Gresham, the UK mid-market buyout firm, has bought the West Cornwall Pasty company, banking on the Cornish snack’s durability in an economic downturn.

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UK mid-market buyout firm Gresham has bought the UK snack company West Cornwall Pasty Company from its founders. Terms were not disclosed, but the price was between £30 million (€43 million, $61 million) and £40 million, according to a source close to the deal.

The pasty company has a turnover of more than £22 million and serves approximately 7.5 million pasties in 55 sites across the UK. The founders of the chain, which sells the Cornish pastry snack have owned the business since the early 1990s.

Christian Bruning, a partner at Gresham, said his firm planned to double the size of the business over the next four to five years by growing the business organically and possibly making selective acquisitions.

“The economy generally is tightening but pasties are well suited to eating on the move so we don’t expect their sales to be hit. The business has good growth potential and we are going to back its chief executive Richard Nieto who has been with business for approaching a year,” he said.

Bruning said the liquidity problems in the debt markets had made deals more difficult, that there will still be plenty of opportunities to buy “the right companies”.

Gresham generally uses 3 to 4 times debt to EBITDA to fund deals. The credit market problems have affected this marginally overall but not the Cornish pasty deal, Bruning said.

Bruning said the sellers had not been hastened into selling by Alastair Darling, the UK Chancellor of the Exchequer’s decision to change the rate of tax on Tuesday, but they had almost certainly been aware a change in the law was likely.

The deal will benefit from the 10 percent capital gains tax taper relief for businesses held for longer than two years. The treasury has said this tax rate will be changed to an 18 percent flat rate from next April.

“It is not a bad idea to take advantage of the 10 percent taper relief, and there will be a number of owners of businesses which have an added incentive to exit, which will have the short term impact of hastening a few deals,” he said.