Annie's Stock Jumps on Acquisition by General Mills

NEW YORK (The Deal) -- General Mills (GIS) , the Minneapolis-based food giant, has struck a deal to acquire organic and natural food maker Annie's  (BNNY) , famed for its bunny-shaped macaroni and cheese product, for $46 per share in cash, or about $820 million, the companies said Monday after the markets closed.

The acquirer is expected to launch a tender offer for shares of Annie's within 10 days, and the deal is expected to close later in 2014. The news sent shares of Annie's up almost 38% in after hours trading from its close at $33.51 to $46.10. In pre-market trading Tuesday, the stock was trading at $45.85. General Mills' stock, meanwhile, was up 1.31% in after hours trading to $54.51.

The deal not only represents a more than 37% premium to Monday's close, but it is also a 51% premium over Annie's 30-day average closing price of $30.47 as of September 5, the target said.

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With little cash or debt, the $820 million valuation works out to a bunny-hopping high multiple of approximately 27.3 times the nearly $30 million in Ebitda Annie's is expected to generate for the fiscal year ending March 31. It is also roughly 4 times the roughly $200 million in revenue Annie's produced for its fiscal year ended March 31, 2015.

Food giants, whose growth in more traditional mainstream categories such as cereal is stagnating, are increasingly looking to higher growth areas for acquisitions. Those categories include snacking as well as natural and organic, or food products with characteristics such as being gluten free or high in protein.

And those food conglomerates have been willing to pay a premium to add these high growth businesses to their portfolio, although, what General Mills is paying for Annie's is certainly at the high-end.

Companies like Annie's tend to attraction valuations of between 2 and 3 times, industry sources have previously said.

However, regardless of valuation, there have been plenty of deals in the natural and organic sector.

Recent transactions include B&G Foods' (BGS)  acquisition of Robert's American Gourmet Food, which makes the Pirate's Booty brand of snacks, in June 2013 for about $195 million in cash, a price that was between 2.3 and 2.7 times Ebitda.

B&G then added Rickland Orchards from Natural Instincts in October at a lower multiple of about 1 times revenue for nearly $58 million. Rickland Orchards, with total sales in excess of $50 million, is a maker of Greek yogurt-coated granola bars.

Post Holdings, (POST)  the St. Louis-based maker of Grape-Nuts cereal, acquired natural and organic food brand assets of Hearthside Food Solutions in a $158 million deal last year. And Campbell Soup Co., also last year acquired Plum Organics, the second-largest natural baby food brand with $93 million in sales in 2012.

Earthbound Farm was picked up by WhiteWave Foods (WWAV)  in December for $600 million or a healthy multiple of 8 to 10 times Ebitda,

More recently, Orrville, Ohio-based J.M. Smucker  (SJM) inked a deal to acquire Sahale Snacks, a provider of all-natural dried fruit and nut blends with current revenue of about $50 million. Sources indicated that the valuation, which was not revealed, pegged the company at between 2 and 3 times revenue.

TreeHouse Foods  (THS) bought nut-based snacks maker Flagstone Foods for $860 million in June. The deal came in at more than 1 times revenue, though that was in line with a lower margin private label business.

General Mills, however, is paying a hefty multiple for a company whose earnings miss in the fourth quarter disappointed investors. While Annie's said the miss was due to the higher cost of wheat, which cut into profits, investors have not been impressed with the mac and cheese maker's performance in recent months, sending the stock down from a high of over $52 per share in late October to trade below $30 per share in early June. The reaction was due not only to disappointing earnings, but also concerns about accounting.

Annie's said in June that its accounting firm PricewaterhouseCoopers was going to resign, along with the acknowledgement that while there were no "disagreements" with the accounting firm, there was "material weakness in internal control over financial reporting identified by the company" for the fiscal years ended March 31, 2013 and March 31, 2014, according to a regulatory filing. That filing also offered revised numbers

Annie's noted the issue of internal control in a 10-K filed with the Securities and Exchange Commission for the period ended March 31. The 10-K, filed on June 2, also offered revised numbers for the past few fiscal years. While the earnings miss and the concern over potential irregularities in results sent the stock down, subsequent speculation by analysts in reports over the summer that Annie's could sell to a larger food giant helped the stock to recover a bit of its lost ground.

The Berkeley, Calif.-based company increases General Mills' presence in the organic and natural category, adding to a portfolio that already includes such brands as Cascadian Farm, Larabar, Food Should Taste Good and Muir Glen. Organic and natural continues to see strong growth, growing 12% a year according to General Mills, while cereal has lagged. 

According to General Mills, Annie's approximately $200 million in sales will be added to the approximately $330 million in sales of its existing organic and natural portfolio.

Molly Ashby remains as chairman of Annie's the private equity firm she founded, Solera Capital LLC, has completely exited its stake in the company. Solera Capital has done well from its investment in the food company. Solera sold 4.1 million shares in Annie's initial public offering to the underwriters at $19 per share, generating nearly $80 million. In a secondary offering on Aug. 6, 2012, Solera sold another roughly 3.3 million shares at a price of $39.25 per share for a total of almost $130 million, according to regulatory filings. In another secondary offering on March 18, 2013, Solera further reduced its stake from 37.7% to 15.1%, selling 3.5 million shares at $40 per share, producing another $140 million, filings said.

In addition to that secondary offering, Annie's repurchased 500,000 shares from Solera at $38.25 per share for almost $20 million.

On Nov. 12, Solera unloaded about 2,5 million more shares at $47.95 per share, producing nearly $120 million, an offering that closed on November 18. The sale of stock by Solera beginning with the IPO likely totaled in the neighborhood of $490 million.

Solera sunk about $80 million in equity into Annie's, and then collected almost $30 million in special dividends and management fees prior to the IPO, according to a Wall Street Journal report.

What Solera gained from the sale of stock in Annie's does not include fees collected since the IPO, which were paid in part for advisory services the PE firm provided. Altogether, Solera likely collected about $520 million, generating a return of 6.5 times its investment.

Annie's received financial advice from JPMorgan Securities and legal advice from Proskauer Rose. General Mills did not retain an investment bank, but received legal advice from Faegre Baker Daniels.

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