In an era where grocery store shelves are increasingly stocked with global brands – Kraft peanut butter, Kellogg’s breakfast cereal – George Paleologou is building one of Canada’s most successful food producers by relentlessly backing regional top quality brands.
As chief executive of Premium Brands Holdings Corp. , Mr. Paleologou is a serial acquirer of high-end, value-added seafood, poultry, pork, beef and baking businesses. If you buy charcuterie in a grocery store or a breakfast sandwich at Starbucks, you’re likely a customer, yet you’ll never see his company’s name on the package.
In 2020, Richmond, B.C.-based Premium Brands invested $751-million buying control stakes in companies, with eight significant takeovers, including partnering with Nova Scotia’s Mi’kmaq First Nations to acquire Clearwater Seafoods Inc. The transaction marked Premium Brands’s largest deal to date, valued at $1-billion including debt. Going forward, customers will still see the Clearwater name on packages of lobster, scallops and clams.
Over the past 15 years, Premium Brands spent $2.7-billion on 73 takeovers, a deal-making spree that outpaces international food producers or private equity funds. However, Premium Brands’s hands-off approach to running its global network is the antithesis of the top-down management practices at Kraft Heinz Co. or a PE fund. In an interview, the 61-year-old Mr. Paleologou said: “We don’t buy companies, we invest in passionate food entrepreneurs.”
In step with a handful of Canadian business leaders – such as billionaire company founders Mark Leonard at Constellation Software Inc. or Prem Watsa at insurer Fairfax Financial Holdings Ltd. – Premium Brands’s strategy is to back proven management teams, providing expansion capital when needed but otherwise staying out of the way.
“We do not acquire businesses to rationalize them, restructure them or integrate them in the pursuit of short-term cost savings,” Mr. Paleologou said in a recent investor letter. “We have a reputation for being an acquirer with integrity, that truly appreciates the spirit of entrepreneurialism and does not destroy value through integration.”
This decentralized structure represents a “bold choice,” said Ron Wasik, a business professor at the University of British Columbia. In a study he published on the characteristics of successful food companies, Prof. Wasik said the defining trait at Premium Brands is “deciding to let each of its companies operate independently and not amalgamating them into one seamless organization with imposed uniformity.”
Preserving regional brands and local food manufacturing is a central element of Premium Brands’s growth strategy and corporate culture, Mr. Paleologou said in an interview with the UBC Sauder School of Business. “In a world too often dominated by large multinational corporations, the story and the face of a founding entrepreneur, and his single-minded passion for preparing good food using traditional methods and the best ingredients, is engaging consumers more than ever,” he said.
Premium Brands’s financial results reflect this customer engagement. Over the past 11 years, including the pandemic, the company averaged 22-per-cent annual revenue growth, with sales expected to be $4.8-billion this year, according to a recent investor presentation. Over that period, Premium Brands’s earnings before interest, taxes depreciation and amortization (EBITDA) rose by 23.5 per cent annually, to a projected $439-million in 2021.
Over the past 10 years, Premium Brands’s stock price has gained about 660 per cent. With a current market capitalization of $5.6-billion, it is 50 per cent larger than rival Maple Leaf Foods Inc. , which markets national brands such as Schneiders and its namesake Maple Leaf label.
Premium Brands’s successful track record has attracted a deep-pocketed backer, with the Canada Pension Plan Investment Board buying stock via private placements to help finance recent acquisitions, including a $57.5-million investment in the Clearwater acquisition.
Mr. Paleologou joined a predecessor to Premium Brands as its controller in 1987, after working as a manager at KPMG LLP. At the time, the company was called Fletcher’s Fine Foods. It was owned by Alberta’s hog producers and sold pork products, competing in what Mr. Paleologou called “global commodity markets,” with thin profit margins and a focus on volume.
In the late 1990s, the Saskatchewan Wheat Pool acquired a majority block in the company. The Saskatchewan co-op sold its stake in 2001 in a management buyout led by Mr. Paleologou and chief financial officer Will Kalutycz. The executives of what became Premium Brands quickly exited commodity food businesses and began acquiring value-added, branded businesses, such as deli meats, artisan bread and seafood. The company named Mr. Paleologou as CEO in 2008; prior to that, he had been the president for seven years.
Mr. Paleologou’s early career experience, working at a commodity pork producer whose financial results reflected volatile commodity prices and low margins, drives one of the few rules imposed on all of the company’s businesses. In the UBC study, the CEO said: “The only thing that Premium Brands dictates to the divisions is that if they move towards becoming commoditized, they will no longer continue to receive corporate support and may eventually be sold.”
Looking ahead, Premium Brands’s CEO says the company sees significant growth opportunities as it broadens its focus from the Canadian market to supplying protein-based products for grocery stores and restaurants across North America. Premium Brands discloses the number and value of potential takeovers it is working on, but not the identity of targets. Currently, the company says it is in advanced or active talks with 15 businesses worth a total of $1.4-billion, and its 10-member mergers and acquisitions team is tracking 95 potential targets worth $10.8-billion.
Premium Brands’s strong balance sheet and takeover expertise have the company positioned for “accelerated and accretive M&A,” analyst George Doumet at Scotia Capital said in a recent report. “We are calling for a period of sustained top line growth, supported by the significant runway left in the seafood, sandwich and U.S. protein platforms.”
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