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P&P invests in UK dairy – updated

The Paine & Partners investment in UK dairy Meadow Foods appears to be the first from a US private equity firm since Britain's Brexit vote.

US firm Paine & Partners has bought a minority share in the UK’s largest independent dairy, Meadow Foods.

Financial details have not been disclosed, but local reports suggest the food and agribusiness-focused firm’s stake will stand at 35 percent. This is the size the original stake held by the exiting Pickering family, as confirmed by executive chairman Simon Chantler. The Chantler family will also remain substantial shareholders.

The deal also appears to be the first US private equity investment into UK agribusiness agreed since the UK voted to leave the EU this summer. The outcome brought on lower exchange rates for the pound, and price increases in imported food products, effects Chantler says will increase opportunities for domestic expansion at Meadow Foods.

The UK exports about £1 billion ($1.33 billion; €1.18) in milk a year, compared with £3 billion in imports. If tariffs are introduced, it will lead to increased demand for domestically produced milk, according to Chantler.

“If the rest of Europe tariffed UK dairy exports we would tariff imports. Our milk will stay in the UK and be utilised here,” he told Agri Investor. “We export less and less as a company. Now it is 15 percent of our turnover, whereas in the early 2000s it was 80 percent.”

He added that although P&P had reviewed whether to go ahead with the deal after the Brexit referendum, the firm decided to go through with it because domestic expansion for Meadow Foods is part of the company’s plan.

“Brexit hasn’t helped move the deal forward as such. They did some research on what the effect of Brexit will be. They did think, ‘nobody was expecting this’, but when they did their research it was clear the investment was a good one.”

The two parties began talks on the deal about a year ago, and drafting contracts six months ago.

The agreement, coming as dairy prices begin to increase, will enable Meadow Foods to continue expanding organically, according to a statement.

According to Meadow Foods’ website, the company is investing £3 million in its fresh-milk Peterborough factory to increase capacity, and has planning permission granted for a further 5,300 square metres of processing and storage at its butter, butter-oil and milk concentrates-focused Chester factory.

There are no plans to change the executive management or  structure of the business, according to the P&P statement.

“Meadow Foods converts its milk and dairy products into dairy based food ingredients that we supply to food manufacturers. We don’t have any brands or retail, and our point of differentiation is that we are dedicated to the [ingredients] industry,” said Chantler. “That means that if there is a shortage, as there is now, you don’t have to prioritise one or the other.”

The European Commission has upped its intervention purchases of skimmed milk powder in recent months, following Europe’s decision to abandon quotas for dairy production. The effect has been an increase in dairy prices, following two years of them tumbling.

“We have effectively gone from feast to famine. The name of the game in milk prices at the moment is volatility,” said Chantler, adding that Meadow Foods is due to pay long-term contracted farmers 21.15 pence per litre in October, and farmers without contracts, who are exposed to higher levels of volatility and represent about 20 percent of Meadow Foods’ supply, at least 27 pence.

P&P currently invests through its $893 million Paine & Partners Fund IV, which is dedicated to agribusiness investing.