NEW YORK (The Deal) -- Big food companies are all planning to use the same ingredient in their recipes for growth: acquisitions.
High on companies' shopping lists are brands that satisfy key consumer trends such as snacking, high protein, organic, all-natural, simple ingredients, gluten-free and allergy friendly, according to executives attending the Consumer Analyst Group of New York Conference this week in Boca Raton, Fla. The appetite for brands fitting that description is so great that valuations are climbing and more potential targets are considering whether the time is right to cash in.
Mondelez International (MDLZ - Get Report) , Hain Celestial Group (HAIN - Get Report) , J.M. Smucker (SJM - Get Report) , Hershey (HSY - Get Report) and Campbell Soup (CPB - Get Report) all said they are looking for takeover targets. Conference participants Kellogg (K) and General Mills (GIS) are also said to be seeking acquisitions.
These well-heeled buyers are willing to fork over huge multiples to win auctions. That dynamic was clear when Hershey paid approximately 9 times revenue for all-natural gourmet meat snack brand Krave Pure Foods, according to one industry executive. The multiple would equate to a price tag of about $315 million based on the roughly $35 million in revenue Krave generated last year. The companies did not disclose the terms of their deal when it was announced late in January.
The most recent deal announced on Monday was Mondelez's bolt-on acquisition of gluten-free, allergy friendly food maker Enjoy Life Natural Brands. The Schiller Park, Ill.-based company had been on the block since early September, after it hired Harris Williams to run an auction. A person familiar with the situation told The Deal late last week that a sale announcement to a strategic acquirer was forthcoming and that the valuation would be a few times the target's $40 million in revenue.
The next deal likely to transpire in the space is the sale of Applegate Farms to Hormel Foods (HRL) , for well north of $500 million. Though industry watchers said companies such as Hain submitted in bids for Applegate, most balked at paying the high multiple the branded meat company will end up commanding. Food industry experts believe the success of the Applegate auction will likely entice Nieman Ranch and its parent Natural Food Holdings to come to market.
Hain CEO Irwin Simon said during his presentation that while his company is searching for and bidding on all-natural and organic food companies, it is not willing to pay much above 10 times ebitda for a growth business. Simon noted that much of Hain's merger and acquisition activity has been focused on small targets of a few million in sales for a good value and then building those brands over time into sizable competitors within the natural and organic sector.
The difference in the price the processed food players pay and what Hain pays is revealing. It shows how badly the food groups need to do deals as their legacy processed food products lose market share. Hain's business from the start was tied to natural and organic foods, so it already has a large product offering, and is therefore more patient in the way it goes about its purchase.
But the big food processors can't afford to wait. With consumers demanding healthier, more wholesome food, the giants are being forced to put dealmaking on the front burner.
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