Pruning Process: 7 Consumer Goods Producers Buy & Sell to Grow
Many consumer-products giants are engaged in a disciplined process of shedding under-performing lines to focus on faster-growing brands. (See related chart). Some companies began shrinking to grow during the recession, while others embraced the realignment strategy more recently. For middle-market dealmakers, the corporate pruning process yields plenty of opportunities to buy and sell.
“Typically a non-core brand has been under-resourced prior to the decision by the corporate seller to divest it,” Henk Hartong, CEO of Brynwood Partners, tells Mergers & Acquisitions. Brynwood has completed 40 corporate carve-outs, including many popular personal-care brands, such as Zest, which it purchased from Procter & Gamble in 2011. Brynwood used Zest as a launching pad for a roll-up of a wide array of well-known products under the banner of High Ridge Brands Co. In May, Clayton, Dubilier & Rice agreed to buy High Ridge for $415 million.
“Zest is a classic example,” Hartong says. “Zest was determined by P&G to be a non-core brand. Through a series of acquisitions, High Ridge became a successful platform company. Large companies constantly go through their portfolios to determine what’s either an under-performing or a non-core brand. There will always be buying opportunities.”
Here are seven publicly traded corporations in the consumer products sector that are actively involved in reassessing their offerings, creating plenty of opportunities for the middle market along the way.
Founded in 1902 and headquartered in St. Paul, Minnesota, 3M Co. (NYSE: MMM) owns several household-name brands, including Post-it notes and Scotch tape, but those product lines are not enough to keep the company growing. Back in 2012, when Inge Thulin was promoted from chief operating officer to CEO, he realized the company needed to do more. Thulin reorganized, consolidating the company into six divisions: health care; industrial; consumer; electronics and energy; and safety and graphics. 3M is now both buying and selling along most of those lines.
3M has been realigning the part of the safety and graphics division that makes safety equipment through acquisitions and divestitures. The division owns the Diamond Grade, EAR, Peltor, Scotchlite and Speedglas brands. In August 2015, 3M completed the $2.5 billion acquisition of harness maker Capital Safety from Kohlberg Kravis Roberts & Co. (NYSE: KKR). Thulin called the purchase an important step in expanding the group. “Personal safety is a large and strategically important growth business in the 3M portfolio,” Thulin said.
In tandem with looking for acquisitions, 3M has been divesting. In October 2015, 3M sold its 40-year-old library systems division, which provides a slew of digital lending, security and productivity services and boasts $100 million in annual sales. The buyer was One Equity Partners Capital Advisors LP, the private equity arm of JPMorgan Chase & Co. (NYSE: JPM).
“After a thorough strategic review, we have decided to exit the Library Systems business, and focus on our core businesses, such as reflective traffic safety and vehicle identification solutions,” said John Riccardi, general manager of 3M’s traffic safety and security division. At the end of 2015, 3M completed the sale of its Faab Fabricauto business to Hills Numberplates. The French-based target makes license plates and was part of the traffic safety and security group.
Outside of safety, 3M has been focusing on other divisions, such as health technology. After considering selling its health information systems business, which provides data software to health care providers, 3M decided to keep the asset. Thulin recently called the division “a healthy and rapidly growing business.”
In another divestiture that was completed in 2016, 3M sold its pressurized polyurethane foam adhesives business to Innovative Chemical Products Group, a portfolio company of Audax Private Equity. The target provides adhesive products that are used to install roof materials and was part of 3M’s industrial adhesives and tapes division, which includes the Scotch brand.
3M is not likely done reshaping itself through M&A. “Portfolio management is an ongoing process,” Thulin said.
The Clorox Co. (NYSE: CLX), began divesting assets in 2010, when it sold its auto care business, which owns the Armor All brand, to Avista Capital for $780 million. Lately, Clorox has been focusing on growing its health and wellness business through acquisitions.
In 2016, Clorox purchased probiotics maker Renew Life Holdings Corp. from Swander Pace Capital for about $290 million in cash. Renew Life, located in Clearwater, Florida, produces health care supplements that are designed to help with digestive disorders. The target is known for its Ultimate Flora brand. According to Oakland, California-based Clorox, two-thirds of the U.S. adult population has experienced digestive issues in the past 12 months, adding that number will likely increase due to dietary habits.
“For more than 100 years, the Clorox portfolio has been firmly rooted in health and wellness, first through the disinfecting properties of bleach, and later extending into Brita and Burt’s Bees to meet the needs of health conscious consumers,” Clorox CEO Benno Dorer said. “The Renew Life acquisition is consistent with our strategy to accelerate growth through bolt-on acquisitions of leading brands into fast-growing categories with attractive margins.” Clorox reported two percent sales growth for the quarter ended Mar. 31. “We remain focused on accelerating consistent, profitable growth by positioning our portfolio behind tailwinds as reflected in the acquisition of Renew Life into our family of brands.”
Expanding the health care businesses has paid off for Clorox. Between 2008 and 2013, Clorox’s professional products division went from $116 million to $274 million in sales. The addition of Burt’s Bees played a significant role in that growth. Since Clorox purchased Burt’s Bees in 2007, the business grew globally, particularly in Asia. Clorox is also planning on expanding Burt’s Bees in Canada, Australia, the U.K., Chile and Mexico. Burt’s Bees is known for making lip balm, moisturizers, facial cleansers and diaper ointments.
Clorox, founded in 1913, operates four business segments: cleaning, household, lifestyle and professional products. The cleaning division operates the Clorox, Liquid-Plumr, Pine-Sol, S.O.S. and Tilex brands. The household unit has Kingsford charcoal and Glad bags. The lifestyle business holds Burt’s Bees, Brita filters, Soy Vay and Hidden Valley dressings. Lastly, the professional segment makes disinfectant products under the Clorox name.
Since taking over as CEO of ConAgra Foods Inc. (NYSE: CAG) in April 2015, Sean Connolly has been busy buying and selling assets to get ConAgra to focus on core brands, including Chef Boyardee, Hebrew National and Hunt’s. For example, ConAgra agreed in June to sell food ingredients distributor JM Swank to Platinum Equity. Connolly is the former CEO of Hillshire Brands, which was sold to Tyson Foods Inc. (NYSE: TSN) in 2014 for $8.5 billion.
ConAgra is in the process of spinning off the Lamb Weston frozen french fries division into a separate publicly-traded company. The pending move, which is expected to be completed by the end of 2016, will allow ConAgra to focus more on consumer brands, such as Slim Jim, Orville Redenbacher’s popcorn and Chef Boyardee. After the separation is completed, the consumer business will be named Conagra Brands, and Lamb Weston will keep its title.
ConAgra reached a deal in May to sell the Spicetec flavors and seasonings business to Givaudan for $340 million. Spicetec produces flavors, spices and seasoning products for food manufacturers. The target will remain a supplier to ConAgra after the transaction closes. Givaudan, located in Vernier, Switzerland, makes flavors for the food and beverage, fragrances and personal care sectors. “We are committed to becoming a more focused and higher performing company in order to drive greater shareholder value. Divesting Spicetec is the latest action we have taken that will allow ConAgra Foods to invest resources into our core product portfolio to drive sustainable growth,” Connolly said. ConAgra was founded in 1919 as Nebraska Consolidated Mills and changed its name to ConAgra in 1971. The company is based in Omaha, Nebraska, but has plans to move to Chicago later in 2016.
In 2016, ConAgra completed the $2.7 billion sale of its private label division to packaged foods distributor TreeHouse Foods Inc. (NYSE: THS). The business was part of ConAgra’s $6.8 billion purchase of Ralcorp that was completed in January 2013, but ConAgra struggled to make the target fit. Connolly put the unit up for sale only three months after taking over as CEO.
Despite the Ralcorp deal failing, ConAgra will continue to look for acquisitions, Connolly said. In 2015, ConAgra purchased Blake’s All Natural Foods for undisclosed terms. Blake’s makes frozen pot pies, casseroles and pastas.
“We intend to continue enhancing our portfolio with the focus on further premiumization, wellness, and authenticity,” Connolly said. “We expect to achieve this through a combination of organic innovation and smart acquisitions.”
4. General Mills
General Mills Inc. (NYSE: GIS), the owner of the Cheerios, Cinnamon Toast Crunch, Lucky Charms and Wheaties brands, has been restructuring its portfolio, as consumers look for other breakfast options besides cereal.
In an effort to keep up with changing consumer eating habits, General Mills has been shifting through its portfolio to get into higher growth snack categories. For example, General Mills sold the Green Giant frozen and canned vegetables brand to B&G Foods Inc. (NYSE: BGS) in 2015 for $765 million. General Mills still operates Green Giant in Europe under a license agreement with B&G. The company acquired Green Giant as part of its 2001 $10.5 billion purchase of Pillsbury.
“The sale reinforces General Mills’ strategic priority to shape its portfolio for growth, focusing its resources on the brands, categories, and geographic markets that have the greatest future growth opportunities,” the company said of the Green Giant deal.
One of those categories is snacks, such as yogurts, where the Minneapolis-based company has been pursuing acquisitions. In 2015, General Mills bought yogurt maker Carolina Administracao e Participacoes Societarias Ltda. for an undisclosed amount. Carolina, headquartered in Ribeirao Claro, Brazil, produces yogurt and other dairy products under the Carolina, VeryGurt and Gluck brands. General Mills calls Brazil a strategic market for growth.
Another category that General Mills has been looking to grow in is protein bars. In 2016, the company purchased meat snacks producer Epic Provisions. Epic, founded in 2013 and based in Austin, Texas, makes protein bars and other snacks with meat ingredients that come in flavors such as Bison Bacon Cranberry, Beef Habanero Cherry, Pulled Pork Pineapple and Chicken Sesame Barbecue. The target will become part of organic food maker Annie’s, which General Mills acquired in 2014.
On the divestiture side, General Mills reached a deal to sell its Argentina bakery and foodservice business to Grupo Bimbo. The sale includes all bakery, foodservice, facilities, equipment, inventory and land assets. The division makes bread and pastries. General Mills will hold on to its retail food business in Argentina that mainly includes the La Saltena brand.
General Mills recently divested another division that came with the Pillsbury deal when it completed the sale of its Venezuela business to private investor Lengfeld Inc. The Venezuela division includes the Underwood, Rico Jam and Frescarini brands.
General Mills representative Bridget Christenson says the company will continue to grow in natural and organic foods, while also using acquisitions to expand in India, Indonesia and the Middle East, areas in which General Mills does not have a strong presence currently. At the same time, General Mills will use acquisitions to remain focused on cereals, snacks, yogurt, convenient meals and premium ice cream, Christenson says.
5. J.M. Smucker
The J.M. Smucker Co. (NYSE: SJM), seller of Smucker’s Jam and Jif peanut butter, has been expanding its portfolio through M&A for almost a decade. But recently, Smucker began divesting assets that it no longer considers a fit for its long term growth plans, so it can focus on escalating its core Jif brand.
For instance, at the end of 2015, Smucker completed the sale of the U.S. canned milk brands to Kelso-backed Eagle Family Foods Group LLC. The deal includes products sold in U.S. retail and food services channels under the Eagle Brand and Magnolia brands, but it does not include the company’s canned milk business in Canada. The target has about $200 million in net sales. The sale includes two manufacturing located in facilities in El Paso, Texas, and Seneca, Missouri. Eagle Family Foods sells condensed milk, which is traditionally used in baked goods such as pies and muffins.
“Although Eagle Brand fits nicely within our strategy and vision of owning and marketing leading brands, the larger part of the business is private label, which is outside of our strategic direction and scope,” then CEO Richard Smucker said at the time of the sale. About 75 percent of Smucker’s annual net sales are derived from coffee, pet food, nut butters, pet snacks, and fruit spreads. Smucker generated about $6 billion in net sales through the first nine months ended Jan. 31, compared to about $4.25 billion in revenue for the same time period in 2015.
In March 2015, the company grew further into the pet foods sector when it closed the $6 billion purchase of Big Heart Pet Brands. Big Heart includes the Meow Mix, Milk-Bone, Kibbles ‘n Bits, 9Lives, Natural Balance, Pup-Peroni, Gravy Train, Nature’s Recipe, Canine Carry Outs and Milo’s Kitchen brands. Smucker called the acquisition a “great strategic fit.”
Aside from its namesake brand, Smucker, founded in 1897, also owns Folgers coffee. Smucker purchased Folgers in 2008 from P&G. In 2014, the company picked up Sahale Snacks, and sold a distribution facility to W.P. Carey Inc. (NYSE: WPC). Sahale is known for its self-branded fruit snacks.
Richard Smucker indicated that the company has no additional divestiture plans for now, but has not ruled them out in the long-term: “We have a good portfolio right now, and it doesn’t mean we’re not going to look at something to divest a small brand here or there, but I don’t see anything in the future in the next year or so,” he said. Richard Smucker has since stepped down as CEO, but is still executive chairman. His nephew, Mark Smucker now leads the company.
6. Newell Brands
Newell Brands Inc. (NYSE: NWL) wielded M&A in 2015 to continue fine-tuning its product mix, winning the company Mergers & Acquisitions’ 2015 M&A Mid-Market Award for Strategic Buyer of the Year. The most significant middle-market deal for the company was the purchase of the 65-year-old Elmer’s Products Inc., a $600 million transaction that closed in October. The company also bought the owner of Yankee Candle, and it sold some non-core businesses. The moves were in keeping with the company’s Growth Game Plan, which was launched in 2012 to create a “larger, faster growing, more global and more profitable company.”
One of the purposes of the new strategy is to allow Atlanta-based Newell to focus on businesses, such as writing, baby and parenting product lines. Elmer’s was added to the writing division, which houses the Sharpie brand, and is already helping that business grow in sales. In addition to its namesake brand, Elmer’s also owns Krazy Glue, and X-Acto, which is known for making cutting blades. For the 2015 fourth quarter, Elmer’s contributed about $37 million, or around 8 percent, in net sales to Newell’s writing business. The latter posted about $466 million in net sales in the same quarter, which represents about 30 percent of Newell’s overall net sales of $1.56 billion in the 2015 fourth quarter. “The addition of Elmer’s adds even more firepower and long-term potential to our building growth-acceleration and margin-development story,” Newell’s CEO Michael Polk said. Newell has plans to move to Hoboken, New Jersey, in late 2016, but will keep its offices in Atlanta after the move is completed.
One other area Newell is focusing on is baby and parenting to help build up the Graco brand. This is where the $15 billion acquisition of Yankee Candle parent Jarden Corp., which was completed in 2016, comes in. In addition to Yankee Candle, Jarden owns Nuk baby bottles. In 2014, Newell completed the $210 million purchase of baby stroller maker Baby Jogger from the Riverside Co.
To help its growth process, Newell has also been divesting assets along the way. For instance, Newell recently announced plans to sell the Levolor and Kirsch window shade brands to Hunter Douglas for $270 million. In 2015, the company completed the $215 million sale of the Endicia Internet mailing services business to Stamps.com, and in that same year Newell sold its mobile work station business to Capsa Solutions. Back in 2013, the company sold five hardware brands to private equity firm Nova Capital Management.
Newell’s restructuring strategy has been helping the company improve sales. The company’s annual revenue increased from $5.73 billion in 2014 to $5.92 billion in 2015, a modest improvement of about 3 percent.
To leverage Pampers and other fast-growing lines, Procter & Gamble has sold Duracell and currently has dozens of brands in the exit process. “Over the past 18 months, we’ve divested, discontinued, or consolidated 55 brands, including the completion of the Duracell transaction at the end of February,” Jon Moeller, CFO of Procter & Gamble Co. (NYSE: PG) told investors during the company’s fiscal 2016 third quarter earnings call Apr. 26. “We have 50 more brands in the exit process, including the 41 beauty brands in the transaction with Coty. In total, we’ll exit 105 brands and all the complexity they create. These brands represent only about 6 percent of fiscal 2013 profit.”
Cincinnati-based P&G will focus on 10 business units that consist of about 65 brands that are growing faster, such as Pampers, Bounty, Charmin, Crest, Tide and NyQuil. “We also expect that the portfolio that we’re going to be left with is a healthier, stronger portfolio that will grow and will grow more profitably,” added Moeller.
P&G is selling 40-plus beauty brands to Coty Inc. (NYSE: COTY) and also recently completed the sale of Duracell batteries to Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A). Earlier in 2016, P&G reached a deal to sell the Pert haircare brand to German consumer company Henkel.
In the earnings release, P&G said that sales revenue increased by 1 percent, but its sales volume dropped by 2 percent. The company blamed some of the sales drop to brand exits. P&G’s portfolio restructuring has yet to reflect improvement in its stock price. P&G stock’s closed at $79.55, a 10 percent drop from $88.60 on Nov. 13, 2014, the day the Duracell transaction was originally announced, to $79.55 on Apr. 26, the day Moeller made his comments.
In 2016, P&G agreed to sell the global license and certain assets of the Christina Aguilera fragrance business to the Elizabeth Arden Inc. (Nasdaq: RDEN) beauty products company for undisclosed terms. Celebrity recording artist Christina Aguilera has been selling her perfumes since 2007; she now has seven brands. George Cleary, president of global fragrances at Elizabeth Arden, said the company plans to grow the Aguilera business globally.
P&G will own 20 $1 billion brands, including Head & Shoulders, Gillette, Mach3, Oral-B and Vicks, after it completes the beauty brands divestiture.
Companies are facing more competition for their products and are under constant pressure from shareholders to increase profits. Strategic buyers will continue to mix and match their businesses through M&A.
Editor’s Note: Unless otherwise noted, comments from executives included in this article were made publicly. The companies profiled declined to provide interviews with executives to discuss M&A strategy, citing competitive reasons.