Onoré CEO on how M&A is feeding French group’s “mission”

DB: What are your priorities for So Mochi now it’s in your portfolio?

AV: There are two things. One is to structure a little bit the industrial process because it was launched by two restaurant owners. They’re scaling up but now we need to get to more an industrial stage, I would say, and try to increase capacity because we are doubling the turnover every year on this category. It’s growing very fast.

The second thing is to do some cross-selling, bring some commercial efforts with our sales force to make sure that we talk to all our customers about this very special product, which for us should be part of their offering, whether it’s in retail or foodservice.

DB: Are there specific geographic markets you think So Mochi could capitalise on?

AV: The main two markets, the clear ones, are the ones we have strong footprints on, which are France and the UK. France because we have a long-lasting relationship with a number of clients. The UK also because it’s probably the most mature market for frozen mochi in Europe. There is the market leader, which is Little Moons, they’re established in the UK. When you look at the products, it’s still a very niche product and this is what is great about it. There is a lot of traction. Every month you have more and more people getting aware of it. There’s a lot of value creation for the future because there will be more sales.I would say that the UK market is a bit more educated because Little Moons has done the job, probably a bit better in retail, which is a good news for us because we are more of a foodservice company rather than a retail company

We are working with a number of international distributors. If you look at the sales of So Mochi, we have about 40% already that is outside France and the UK. We have strong traction, especially in Europe.

DB: So Mochi is Onoré’s fourth acquisition in two years. Looking at your M&A strategy as a whole, what kinds of attributes does a company need to have for you to look to buy it?

AV: The first one is to be a leader on a product specialty. If you’re a leader on a well-established or very promising specialty, then that’s of interest to us. The second is a minimum of size, a minimum of €10m, I would say. A double-digit EBITDA margin, so profitable and growing organically for us is important. Our group is growing at a significant pace organically and we want to keep that. It’s not only about just buying new businesses but we’re also focusing on our existing businesses and making sure that they grow as well.

DB: France and the UK are Onoré’s principal countries of operations at the moment. Where could be next?

AV: Countries with a strong identity from a food perspective and gastronomy. We’re more looking at Mediterranean countries but we’re talking to other companies in Germany and Belgium or whatever. Most of the discussions we have are more geared towards the Mediterranean countries.

DB: With how many companies are you in active discussions at the moment?

AV: We have a lot of discussions. Tens.

DB: Do you expect to be able to finalise another deal by the end of the year?

AV: We’ll try to and I think we’re in a good position to do so but, until you have it signed, it’s not done.

DB: Do you think that’s likely to again be in France or the UK?

AV: Probably outside.

DB: When you talk about a product specialty, how would you define that?

AV: It’s a product that has a strong identity, that is linked to the local culture. If you talk to someone locally or on the other side of the world and you say to them ‘Where does this product come from?’ they should be immediately able to say where it comes from. If you say ‘Tiramisu, where’s it from?’, people would say it’s Italian. A pastel de nata is Portuguese and a waffle should be, you know, Belgian, right? It’s iconic products that are linked to the gastronomy of the country. So far, we’ve been able to do that.

So Mochi is an interesting one because it’s a Japanese specialty. So, why do you buy a company based in France that does mochi? I’ve been thinking about that and the truth is it’s not mochi anymore. It’s a frozen mochi with ice cream inside. It’s not what the Japanese would eat actually. The frozen mochi market in Japan is very small because people are used to having their traditional mochi. It was reinvented by Americans initially and imported into the UK by Little Moons. It’s a specialty product because it’s linked to a traditional pastry from Japan but it’s mixed with ice cream, so it’s not linked to a very specific geography, I would say.

DB: Product specialty is important to your M&A strategy. If you link that to the consumer, why do you think it’s important to buy those kinds of businesses? Why is that kind of product attribute important to the consumer in today’s food culture?

AV: Our mission is to discover and produce food specialties locally where they should be produced and bring them to the market, whether they’re consumed locally or on the other side of the world. Our purpose is first to produce them in the way they should be produced, having a respect of the traditions of the recipes and of the ingredients. On the other side, looking at new technology and, obviously, the great thing is that the food industry is evolving. There’s a lot of new equipment, so we can produce safer. The fact that we have frozen products; they didn’t exist 50 years ago. The point is we’re bringing the technology but also with the tradition and the way it should be produced.

And then there’s this notion of exporting gastronomy. This is a very strong trend. Consumers want to have, first of all, good-quality products but they also want to discover new things and they want to travel through their plates. People take a photograph of what they eat and they post it.

DB: Are you more interested in foodservice-oriented companies, retail-focused, or a mix of both?

AV: We are currently two-thirds foodservice, one-third retail. I think that’s the right balance. I wouldn’t want to change too much on that, so between 60% and 70% foodservice. This is the main segment we’ve been focusing on historically. This is where we are more legitimate. Second of all, it’s where you get the best — in terms of value chain, there’s more elasticity in the price, so you can create more value there.

It’s less concentrated also and it gives more opportunity for players like us to launch new things. It’s much more dynamic. It’s less established than retail. Retailers tend to look a lot at what is going on in foodservice and follow afterwards. I don’t want to generalise because some retailers are quite innovative like Picard and the likes but most of them are more traditional. You have more innovation and more opportunity to create value in foodservice, I would say.

DB: Is it easier for a company like Onoré to have a greater share of the margin in foodservice than in retail?

AV: I would say so, generally speaking, yes. Also, because of the concentration of the market, right? From a general perspective, food groups tend to be more profitable in foodservice than in retail due to market concentration.

DB: How do you work to keep Onoré growing organically, so it doesn’t just rely on M&A?

AV: The point is we identify companies that are fast-growing themselves and the objective is to not only continue their trajectory but accelerate that through in our network. We export in over 35 countries now. Most of the companies we acquire at this stage are rather playing locally, especially the two UK businesses. They didn’t export anything.

We cross-sell. That’s a key one. Bring more value to the business by bringing the company into a new ecosystem where you have new clients but also new suppliers. You have competencies at a group level. When you’re a small business, you know, a £30m turnover, you don’t have these competencies in-house. This is about bringing them more competencies to foster the business and growth.

DB: As you’ve acquired these now four businesses, what are the main lessons you’ve learned as you’ve absorbed them into the company?

AV: Very interesting question. I think the first one is integrating a company takes time. We’ve been too optimistic in saying we’re going to bring this company into the ecosystem, we’re going to talk to our clients about these products, it’s going to sell and in six months’ time we’re going to grow. It doesn’t happen like that. It takes more time than what you think. You need to educate your sales team and make sure that they understand really the value of the products.

The key for me as well is to leave the businesses as independent as possible. We acquire companies that are performing very well. You don’t want to — in French we say ‘break the toy’. You want to make sure that they thrive in the new ecosystem, that they perform even better than they did. If you start saying ‘Us from Toulouse, we’re going to tell you what you should be doing in product innovation’ it doesn’t work. The responsibilities and then the decision-making should remain local. Obviously, there’s a group frame that needs to be respected as a few corporate policies. Apart from that, we want the teams locally to remain as independent as possible to keep the agility and the innovation that they have.

DB: Is it a difficult balance to tread because you must be looking at synergies and benefiting from scale at the same time?

AV: Yes, you need to have very clear rules. What is decided centrally there are very few things but, if we say that something is decided centrally, [there is] no compromise on that. People and food safety are decided centrally. The minimum requirement standards are decided top-down and should be applied everywhere. Financial reports, the way you calculate margins and you assess your stocks etc., there’s a book and it has to be applied. And also CSR. This is very important. If you do a decarbonisation strategy, if all business units don’t apply the same efforts, it doesn’t work.

Apart from that, it’s coordination, from talking about investments, to talking about sales coordination, to the marketing of Onoré. It’s about making sure we have a strong alignment between the different businesses but, at the end of the day, the decisions are taken locally.

DB: Onoré is majority-owned by PE firm Waterland. The typical private-equity ownership lasts around four, five years. Is that the rough timeline you’re working to?

AV: Waterland generally invests for a four-to-five period of time. That’s their average I would say. Then it depends how the business is performing and the market conditions for the exit, so it’s difficult to say. All I can say is we are performing better than we planned initially, so that tends to accelerate [an exit] but, if we don’t have the right conditions for an exit, they are going to remain. If all the conditions are in place, it could be sooner than five years.

DB: And do you think an exit would be to another private-equity firm or would it be to a corporate? I know it’s hard to say.

AV: It’s going to be obviously quite open. We’ve seen Mademoiselle Desserts are going to a corporate. There will be probably some corporates looking at it but, from a management point of view, we’d like it to be a new PE firm. We’ll see.

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