General Mills Inc. just stocked up on organic mac and cheese. Almond milk and vegan crackers may be next on hungry acquirers’ lists.
WhiteWave Foods Co. and Boulder Brands Inc. look like ideal takeover targets now that Annie’s Inc. was swallowed by General Mills. All-natural products like theirs are attracting mainstream consumers and becoming a threat to the traditional packaged-food companies that have long dominated supermarket shelves. As the industry giants face grim growth prospects, buying up these smaller brands may prove the most effective use of cash right now. (see Mergers & Acquisitions' September 2013 cover story Snack Time.)
General Mills has made the biggest bet so far, paying $810 million for Annie’s in a deal that closed this week. (For more on Annie's, see Annie's Molly Ashby Shares Secrets of Success.)
It’s the decade’s most expensive U.S. food deal, based on the profit multiple. WhiteWave is a bigger target, valued at $6.1 billion, while Boulder’s market value is $587 million. Like Annie’s, WhiteWave and Boulder will continue making sales gains that outstrip that of major household names such as Nestle SA, Kellogg Co. and PepsiCo Inc., according to analysts’ projections compiled by Bloomberg.
“The larger food companies are desperate for growth,” Mitchell Pinheiro, a New York-based analyst at Imperial Capital LLC, said in a phone interview. “It’s possible that the children or grandchildren of millennials won’t even know who Tony The Tiger is,” he said, referring to the cartoon mascot for Kellogg’s Frosted Flakes.
“A lot of these guys are going to have to buy their way in, they really have no choice,” Pinheiro said. “Annie’s is a great example of what they’re looking for.”
Molly Keveney, a spokeswoman for WhiteWave, said the company doesn’t comment on M&A speculation. Caroline Hughes, a spokeswoman for Boulder, didn’t return a phone call seeking comment.
WhiteWave was spun off from dairy-products maker Dean Foods Co. last year. Its brands include Silk almond, soy and coconut milk and Earthbound Farm organic produce. Last month, the company agreed to acquire So Delicious, a maker of dairy-free milk and frozen treats, for $195 million.
Boulder makes Evol frozen, gluten-free tacos and burritos that contain beef and poultry raised without antibiotics. The Boulder, Colorado-based company also sells Earth Balance vegan snacks and Level Foods that claim to help with diabetes.
U.S. sales of natural and organic products reached almost $40 billion as of mid-2014, an 8 percent gain from a year earlier, according to Spins LLC and Information Resources Inc. The growth is being driven primarily by increased sales not higher prices, the data show.
Exposure to this segment of the food industry is proving so vital that General Mills was willing to pay a steep 50 percent premium for it. That deal valued Annie’s at about 36 times trailing 12-month earnings before interest, taxes, depreciation and amortization, the richest valuation for a U.S. food acquisition larger than $100 million in the past 10 years, according to data compiled by Bloomberg.
“We may see further deal making in the health and wellness space as companies jostle for position in these faster-growing categories,” Alexia Howard, an analyst at Sanford C. Bernstein & Co., wrote in an Oct. 1 note to clients. Of the possible targets, “WhiteWave might be the most attractive since it has a concentrated brand portfolio.”
WhiteWave shares have jumped 53 percent this year, the fifth-largest gain in the Standard & Poor’s 400 MidCap Index. The company was valued at 25 times Ebitda yesterday, double the median multiple of the much larger, more traditional foodmakers.
The Annie’s deal implies a price tag of $9.1 billion for WhiteWave, after subtracting net debt, or about $52 a share. That’s 48 percent higher than yesterday’s closing level.
A buyer would have to offer Boulder investors $28 a share to match the Annie’s valuation, about triple the stock’s current price. Boulder tumbled 24 percent yesterday after saying third- quarter revenue will be below estimates.
Today, WhiteWave shares rose 1 percent to $35.49 at 10:28 a.m. New York time. Boulder dropped 6.9 percent to $8.96.
WhiteWave’s revenue surged 24 percent in the most recently reported 12 months, and Boulder’s climbed 15 percent. General Mills, Kellogg, Kraft Foods Group Inc. and Mondelez International Inc. all posted sales declines. Pepsi, known for its carbonated drinks, generates more than a third of its revenue from Frito-Lay snacks and Quaker oatmeal. Pepsi’s sales rose less than 1 percent in the last 12 months.
Nestle Chief Executive Officer Paul Bulcke said yesterday the company will grow more internally than through acquisitions. He spoke in an interview in Mexico.
Representatives for Nestle, Mondelez, Kellogg, Kraft, Pepsi and General Mills declined to comment on whether their companies are considering buying WhiteWave or Boulder.
“It is expensive to buy the smaller companies because they are in demand,” said Jack Russo, a St. Louis-based analyst at Edward Jones & Co. And the challenge is they don’t “move the needle much for the acquirers since they are so large. But it is a step in the right direction.”