Grain Craft Deal Revs M&A Engines of Flour-Making Faithful

By Jack Sweeney

*Originally published in Middle Market Executive on May 21, 2014

In a year of tepid deal-making, the flour milling industry is providing the grist for one of the more notable 2014 middle-market transactions, as Milner Milling Inc. and Pendleton Flour Mills finalized their acquisition of Cereal Food Processors earlier this month and created Grain Craft, a new company with headquarters in Chattanooga, Tenn.

Characterizing the deal as the biggest acquisition in his firm’s 23-year history, Milner Milling CEO Charles Stout said that Milner had to up its M&A game to nail down the deal.

“Because companies like this don’t frequently come on the market, there was just tremendous interest and there was global interest,” explains Stout, who adds that the deal’s size, along with the crowded field of competitive bidders, made him seek help from financial advisor FourBridges Capital Advisors.

Andy Stockett, managing director of FourBridges, says that Cereal Food Processors had spent little time on Milner’s M&A radar.

“When we first began talking with Milner maybe 2 or 3 years ago, Charlie told me at the time that on the milling side, assets don’t typically trade because they are family-owned and they are just really good businesses — and then all of a sudden this one cropped up,” Stockett explains.

Cereal Food Processors, founded in 1972, is the largest independent flour milling company in the U.S., with 10 facilities across the country. Milner, with six flour mills, is now expected to triple its sales with the purchase.

The purchase of Cereal Food Processors comes a year after the top two flour milling companies, owned by Cargill and ConAgra, announced an agreement to combine under the Ardent Mills name.

“There has just been a tremendous amount of consolidation on both the milling and the baking sides of the industry,” explains Stout, who notes that the newly formed Grain Craft will now be able to offer its customers greater efficiencies.

“For this industry, it’s about having the capacity and the right rotation, and you need size if you are going to move capacity around,” Stout says. A privately owned company, Milner supplies bulk and bag flour to a broad range of food manufacturers and food service customers as it serves customers across the Southeast, while Pendleton operates facilities west of the Mississippi River.

Milner acquired half of Pendleton Flour Mills (PFM) 11 years ago and manages PFM. With the purchase of Cereal Food Processors, the combined companies will be able to produce an estimated 59,600 cwts (hundred weights) of flour a day, one press report estimated.