Sun Capital Eyes 40x Return On Carve-Out

Sun Capital Partners has agreed to sell Del Monte Canada, a collection of Canadian food businesses it bought from Kraft Foods Inc. back in 2006, to ConAgra Foods, generating one of the firm’s best returns ever.

The sale generated more than 40x Sun Capital’s invested capital, which includes a dividend recapitalization executed in 2009, according to a source familiar with the transaction. The return is likely among the top 10 ever generated by Sun Capital. The investment comes out of Sun Capital $1.5 billion fourth fund, closed in 2005. It’s not clear how much money the firm originally invested in the company, which generates $150 million in revenue.

The assets Sun Capital bought from Kraft included Aylmer tomato products, Primo pasta, and part of Kraft’s Canadian operations, which included Del Monte fruit products.

“We had some great brand names and there was a real opportunity to invest in and innovate the brands,” Scott Edwards, a managing director at the firm, told Buyouts.

Sun Capital changed the name of the business to Del Monte Canada and sold off the company’s pasta and soup businesses, which were less profitable. The firm installed new management, built up a sales and marketing force and invested in new products like roll-up and frozen fruit snacks. For its fruit business, it also transitioned to plastic packaging from metal packaging, which customers prefer so that they can actually see the product, Edwards said.

Today the company employs 190, according to a release from ConAgra. The sale includes the company’s manufacturing facility in Ontario and its headquarters in Toronto. The company was losing money when Sun Capital bought it and is now profitable, Edwards said, but he declined to discuss specific numbers.

In the fall of 2011, the firm began shopping the company, with Harris Williams & Co., the mid-market advisory shop, managing the process. This is the second time Sun Capital has sold a company to ConAgra: in 2010, it sold Elan Nutrition, a maker of nutritional bars, to the company.

Sun Capital targets struggling companies with $50 million to $5 billion sales across a variety of industries, including retail, packaging, health care and food, among others.

Previous investments in the food and foodservice sector include Creekstone Farms Premium Beef, a processor of Black Angus beef; Harry’s Fresh Foods, a maker of home-style refrigerated foods; and Sunrise Growers-Frozsun, a supplier of frozen and fresh strawberry products.

Sun Capital, which manages $8 billion in capital, is currently investing from its fifth buyout fund, a $5 billion pool of capital.

EG Capital Group, a consumer-focused private equity firm based in New York, is also selling its minority stake in Del Monte Canada as part of the transaction.

Bernard Vaughan is a senior editor at Buyouts Magazine. Follow his tweets @BVaughanReuters. Follow Buyouts tweets @Buyouts.