Buyout Firms Circle Fresh Food Giant Bakkavor

Some of Europe's biggest private equity firms are circling a supplier of ready-meals to Marks & Spencer (Other OTC: MAKSF - news) and Tesco (Xetra: 852647 - news) even as price deflation hampers food producers' profitability.

Sky News understands that PAI Partners and Pamplona Capital are two of the buyout groups which have lodged an interest in acquiring a large stake in Bakkavor.

Their interest comes nine months after advisers at Barclays (LSE: BARC.L - news) were appointed to find new owners for shares in Bakkavor which remain held by Icelandic banks as a hangover from the 2008 financial crisis.

Bakkavor is the UK's biggest supplier of fresh prepared foods, employing more than 18,000 people globally and operating from more than 30 sites across the UK.

Its major customers include Waitrose, and it supplies retailers with products including ready meals, pizzas and desserts.

Barclays is hunting a buyer for the 25% of Bakkavor which is owned by Arion Banki, while other Icelandic institutions, including the Pension Fund of Commerce and the Gildi Pension Fund, which between them hold about 12% of the company, are also expected to participate in the share sale.

The Gudmundsson brothers, Agust and Lydur, who founded Bakkavor a quarter of a century ago do not intend to sell any of their 39% shareholding, according to another source.

The brothers are being advised by Rothschild.

The auction follows a restructuring of Bakkavor's borrowings, including a debt-for-equity swap, in 2013, since which the company has performed strongly with first-quarter results this month showing like-for-like revenue up 3% and adjusted profit up 15%.

Bakkavor became a big player in the UK through its takeover of Geest in 2005, a deal which reflected the rapacious appetite among Icelandic companies to expand internationally.

The enormous loans made by Iceland's banks enabled those companies to embark on a debt-fuelled spending spree but triggered the meltdown of the country's economy when the financial crisis hit in 2008.

The Gudmundssons were the biggest shareholders in Kaupthing, one of the Icelandic banks that collapsed, through their investment vehicle Exista.

Last month, Bakkavor said it would sell its remaining 60% of Italpizza in Italy to Dreamfood, a local player, with the transaction expected to close in the second half of this year.

Bakkavor's international customers include Burger King, PizzaExpress, Pret (Shenzhen: 002324.SZ - news) a Manger and Starbucks (Swiss: SBUX.SW - news) .

Bakkavor, PAI and Pamplona declined to comment on Friday.