Sun cooks up 40x return on food exit

The firm has agreed to sell its majority stake in Del Monte Canada to ConAgra Foods. Sun created the company in 2006 after combining a number of businesses owned by Kraft.

Sun Capital Partners is poised to turn a sweet profit on the exit of canned fruit and vegetables company Del Monte Canada.

Sun did not disclose a price tag for the sale to NYSE-listed ConAgra Foods, but an industry source said the deal will generate at least a 40x return for the firm. Sun created the company, formerly known as CanGro, in 2006 by purchasing a collection of underperforming businesses from Kraft. The firm rebranded the company, which sells packaged fruit and tomatoes in Canada, as Del Monte Canada in 2010.

Sun invested in Del Monte from its $1.5 billion fourth fund and acquired a majority stake, with New York-based private equity firm EG Capital Group participating as a minority investor. EG Capital is also selling its minority stake in the transaction.

Over the past five years, Del Monte has grown from a “money losing business to a highly profitable company”, according to a statement.

It is not the first time Sun has generated a 40x return multiple on a Canadian investment. In 2005, the firm sold a 25 percent stake in apparel retailer Hub Distributing to Ares Capital for $30 million, generating a 45x cash-on-cash return.  Sun currently owns one other Canada-based portfolio company, Fearman’s Pork, and has “many companies with operations in Canada”, Sun managing director Scott Edwards told Private Equity International.

“We find Canada to be a very attractive market,” Edwards said. “Generally, we pursue small to medium sized businesses, and there is a good number of those businesses [in Canada].”

The food and beverage space also looks attractive in 2012, Edwards added.

“We’ve had a good run with food and beverage markets in the last couple years,” Edwards said. “Our portfolio has grown in those markets and we would expect that to continue.” 

Sun is currently investing its fifth fund, which is more than 50 percent invested. The firm in 2009 slashed the size of the fund from $6 billion to $5 billion at its LPs’ request. Sun is expected to begin fundraising for a $3 billion fund with a hard cap of $4 billion later this year, according to a limited partner who attended Sun’s annual general meeting.

Last month, the turnaround specialist promoted five principals, including Edwards, to managing directors. Sun had a busy year in 2011, completing 31 total acquisitions.