As the collective focus of most consumers and dealmakers jogs toward healthy food, a select few have developed a counter-intuitive thesis: Invest in junk food. There are a few drivers behind the deals: junk food companies possess recurring revenue streams that are attractive to private equity firms; and companies known for making traditional snacks are looking to diversify.
"Even people who live healthy lifestyles have some form of demand for junk food," says Mike Shaw, who advises on food and beverage transactions as a principal at law firm Much Shelist.
Not-so-good-for-you snack brands are also up for sale, hitting the auction block as larger, strategic buyers clear their pantries to make room for better-for-you food and beverage acquisitions. The divestitures are part of a larger prediction Mergers & Acquisitions made in our January issue, when we reported large corporations would look to shed non-core assets in 2015.
"When you see and hear about a lot of successful M&A activity, it puts pressure on strategic buyers to look internally and see what is healthy, and what is not, and then to try to make room for new additions that can be healthy," Shaw says. "A lot of them need to shed the underperformers before they can add." For more on healthy food M&A, read Snack Time.
There are a few groups that have scooped up the divestitures. In March, Harvest Hill Beverage Co., backed by Brynwood Partners, picked up American Beverage Corp. for $55 million. The deal came about when Amsterdam-based food group Royal Wessanen announced it would focus on healthy options and sell American Beverage, which makes alcoholic beverages and cocktail mixers, under the Little Hug Fruit Barrels, Big Hug, Guzzler and Daily's brands.
Brynwood formed Harvest Hill in 2014 when it bought Nestle SA (VTS: VESN) cast-off Juicy Juice. Nestle owned Juicy Juice since 1986, when consumer desire for sugary, shelf-stable juice was high. But that market has shriveled shrinking 3 percent year-over-year since 2011, Nestle said before it sold the brand. "By further leveraging the brand's nutritional and wellness attributes, we plan to continue providing our loyal customers with its high quality, great tasting products," said Brynwood CEO Henk Hartong of the Juicy Juice transaction.
Findus Spain also agreed to buy a Nestle divestiture, grabbing frozen-food business La Cocinera in January.
Traditional snack food companies are considering acquisitions to add categories. In January, candy institution Hershey Co. (NYSE: HSY) moved from sweet to meat with the acquisition of jerky-maker Krave Pure Foods Inc. Krave makes “all-natural” jerky snacks (which do not contain gluten, high-fructose corn syrup or MSG) with flavors including Black Cherry Barbeque Pork Jerky, Basil Citrus Turkey Jerky and Chili Lime Beer Jerky. When Hershey made the deal, it pointed out that the meat snacks category is growing at a double-digit pace, and the better-for-you subset of that category, in which Krave shines, is growing even faster.