The milk shed doors are opening up again in Western Australia as private equity firm Archer Capital considers the exit options from its milk and yoghurt manufacturing business Brownes Foods.
Archer toyed with a sale process last year but put that on ice when sentiment soured around the dairy sector after the troubles at Victoria's Murray Goulburn Co-operative and the public backlash against $1 a litre private label milk at the big supermarket chains Coles and Woolworths.
The Melbourne arm of investment bank Moelis and Company is handling the Brownes sale process, planned for next year.
The team has form in the space, having advised Victoria's Burra Foods when it was acquired by Chinese company Inner Mongolia Fuyuan Farming, providing that dairy processor with access to the surging Chinese market and new capital.
Brownes, which is making about $15 million in earnings before interest, tax, depreciation and amortisation, has used its time away from the spotlight carefully.
Under the leadership of chief executive and turnaround veteran Tony Girgis, the company has cut costs and lifted productivity, including rationalising operations back to one processing site.
Brownes is one of the last remaining independent dairy companies of scale that is not farmer owned, following the hotly contested auction for Warrnambool Cheese & Butter which wrapped up in February 2014.
The company collects 144 million litres of milk a year from more than 60 dairy farmers in south-west WA, before selling it as milk, flavoured milk and yoghurt under the Brownes and Chill brands.
Sources said the fresh dairy market in WA is more rational than that of the east coast (largely due to the fact it's self contained) which means Brownes has been more sheltered from volatile dairy prices.
Mr Girgis has also redirected the company's focus toward fresh dairy export markets, including China and south-east Asia.
In 2014 The Australian Financial Review reported Archer had been considering bringing in an offshore joint venture partner for Brownes in the wake of interest in the industry.
Local and global dairy players that would consider the business include locally-listed Freedom Foods and Dean Foods from the United States.
Canada's Saputo, which owns an 88 per cent stake in Warrnambool Cheese and Butter, is also considered likely to take a look, along with China's Bright Food Group, Philippines-based Monde Nissan and Japan’s Kirin-owned Lion.
Observers are also keen to see if the dual-listed Australian-New Zealand A2 Milk Company is interested in the sale documents as part of its plans to expand production in response to strong demand from Asia.
Archer's fully-owned subsidiary DairyWest bought Brownes from Fonterra Co-Operative Group in 2011.
- This story first appeared in The Australian Financial Review
