Private Equity Firms !

The Arnott family started making biscuits in Australia in 1865 and went on to become the iconic brand we looked for on supermarket shelves.  There was great consternation when the giant American company Campbell Soups bought Arnott's but its world wide marketing skills increased the Arnott name recognition across a host of new markets.

Company profitability is all about the buying and selling of assets and for some time it has been quietly hinted that Campbells would consider offers for their Arnott's brand - and the vultures have been circling. Acquisition of Arnott's would suit a cashed up food company wanting to break into the international market, but it seems that the successful bidder is a private equity firm.

This private equity firm has a style of doing business that may see some of Arnott's cherished products disappear.   They specialise in making drastic changes to make their acquisitions more profitable and then reselling that improved company at a far higher price.   That usually involves the ruthless cutting of staff numbers and the concentration of product output to increase profitability.

The Arnott's payroll involves 2,400 Australians across its range of production plants and it posted a profit of $76.5 million in the 2018 year, an increase of 14% on the previous year.  The Arnott product range includes both stand alone tastes and a mix of tastes by way of variety packs and it is feared that many of the slower selling products will be sacrificed in the interests of increased profitability.   We may see an old perennial like " Orange Slice " become such a casualty.

Private equity firms come in many guises.  They are famous for acquiring firms that have slid into bankruptcy at a fire sale price and ruthlessly restructuring them to restore their bottom  line.  Once that profitability has been regained they are returned to the market and the private equity firm is again looking for a new venture.  The objective is to make a fat profit from the renewal, not to keep their acquisition for more than a year or so while restructuring.

The other marketing edge is to acquire a perfectly healthy company and drastically improve its profitability by staff reduction and the cull of slower moving products.  Staff loyalty is under valued and senior people with experience are replaced with cheaper labour in the name of increased profitability.   That slimmed down company may present a better bottom line, but it is rarely a happy place to work for those under pressure to do more with less.

Such is the situation in this age of automation and artificial intelligence.  It seems that an iconic brand that has served us well for 154 years may fall victim to pursuit of the almighty dollar.