Two Acquisition Winners: Post Holdings and Zebra Technologies
By: Nicole Urken
| 05/06/14 - 02:15 PM EDT
NEW YORK (TheStreet
) - On Mad Money, we are always looking for opportunities, particularly when it comes to companies taking their fate into their own hands and the market not recognizing an important transformation. Two companies that are benefiting and can be termed recent "acquisition winners" are Zebra Technologies (ZBRA)
whose stock sold off after its acquisition of Motorola (MSI)
Enterprise business (though has correctly come back!) and Post Holdings (POST)
whose stock has continued to rise on its tuck-in acquisitions.
As for Zebra, on April 15th before the open, the company announced it would acquire MSI's Enterprise Biz for $3.45 billion. Why like Zebra here? This leading global manufacturer of specialty printers, software, supplies and RFID solutions is creating a more complete product and service offering.
Remember, Motorola, after hemorrhaging money from 2007-2009, divided into two public companies--Motorola Mobility and Motorola Solutions--in the beginning of 2011. Motorola Mobility (MMI) was bought by Google in August 2011-- and the smartphone portion of this was just sold to Lenovo. Motorola Solutions (MSI) was comprised of Government, Public Safety and Enterprise Mobility Solutions divisions (it sold its networks division to Nokia). This is key, because since MSI was struggling, Zebra in some ways is taking advantage of a strong asset in a difficult situation. And Zebra bought the division known as the barcode division on the cheap versus what Motorola paid for it in 2006 (it was known as Symbol Technologies).
Now, it is true that this area has gotten more competitive in recent years. But there is upside because MSI's Enterprise business is within ZBRA's core competency.
Yes, Zebra's stock originally went down because of risks associated with the size and price but the synergies and more complete offering allows for upside ahead. And don't forget innovation.
Moving onto Post. Post has been a huge acquisition winner as a pure play company,
as it has had the flexibility and capital to make small acquisitions increasing leverage to healthy food space (remember, we have liked this with White Wave (WWAV)
as well, which spun off from Dean Foods (DF)
Remember, Ralcorp--now part of ConAgra (CAG)
--originally bought POST from the "old Kraft" in 2008 - however, during its ownership, RAH did not manage biz (sales force disruption with diluted customer focus and lack of marketing innovation).
POST has done very well with more focus and improving margin and cash flow since its spin off from Ralcorp in Feburary 2012. Now, POST is focused on ready-to-eat cereal products but has been very acquisition focused. From their 2013 annual report: "Perhaps, uniquely, we view Post as a hybrid of traditional public company and a private equity fund. We use many of the same tools as a private equity company--relatively higher leverage, investment analysis and adaptive management. We also view our portfolio as dynamic, reacting to opportunities as they develop. However, unlike most private equity firms, we also provide Centers of Excellence to create competitive advantages for our operating companies."
In particular, the company has made acquisitions to focus on the health space that have boosted the stock--Active Nutrition comprised nearly 30% of POST's sales as of the end of March.
The latest win: Michael's Foods--should help as the other smaller acquisitions have. On April 17th, POST announced it would acquire MFI Holding Corp (Michael Foods) from GS Capital Partners, affiliates of Thomas H. Lee Partners and other for $2.5bn.
The CEO recognizes value: "
Years ago I remember someone saying that he acquired something, I said, what the hell did you buy that for and he said, well, Bill, this is a Renoir, and you keep looking for these things, they come along so rarely. And this has all the characteristics of this being a superb business. Got a great management team and a unique category and it was offered at a fair price."
And the company wants to invest in important secular themes: "Michael Foods is a leading producer of value added food products and service solutions across multi channels. It, as Bill mentioned, continues our transformation and continues our investing behind very large secular themes around the increased consumption of protein, around away-from-home breakfast occasions, and if you look back at the portfolio that we have been attempting to construct, the commonality of certain large themes in which we have been investing behind."
Michael further diversifies POST's product mix away from cereals and reinforces its growing presence in protein-related foods. And, it enhances POST's presence in away-from-home breakfast. Plus, Michael requires little cash investment and grain-based pass-through pricing model also limits cost volatility. While POST's post-deal leverage (6x EBITDA) is high, it is aligning itself with important growth categories.
Meanwhile, POST continues to make efforts in its cereal nad private label categories as it takes advantage of food acquisitions.
Remember, for food, the most active period occurred between 2000-02, when numerous large-scale transactions were consummated (including Unilever for Bestfoods, Kraft for Nabisco, Kellogg for Keebler, Nestle for Ralston Purina, General Mills for Pillsbury, PepsiCo for Quaker Oats, among others). Since this major consolidation wave, many remaining players untouched. Now, with split-offs (Sara Lee, Kraft as examples), the dynamic changing... with recent big deals like Berkshire-Heinz, ConAgra-Ralcorp, Smithfield interest from China, and brand acquisitions like Hormel buying Skippy from Unilever creating interest.
The bottom line? We haven't seen a huge amount of M&A this year, but it always key to recognize the winners when they come. ZBRA and POST are both winners for very different reasons.
--Written by Nicole Urken in New York.
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