Italian chocolate company Ferrero International SA, which makes Nutella among other products, announced this week that it will acquire private equity-backed Ferrara Candy Co. for undisclosed terms, the latest reshuffle in the U.S. candy category.
Ferrara, which produces such confections as Red Hots and Lemonheads, among others, generated 2016 revenue of $859 million, according to Moody's Investors Service Inc. analyst Brian Silver. In contrast, Nutella maker Ferrero reported 2016 revenue of €10.3 billion ($12.1 billion), up 8.2%
Greenwich sponsor L Catterton in 2012 formed Ferrara, the United States' third-largest non-chocolate candy company, which features "a solid product portfolio with a number of well-recognized brands while maintaining good channel diversification and a moderate degree of customer concentration," according to Silver.
L Catterton predecessor Catterton acquired Farley & Sathers Candy Co. in 2002 for what The Deal, a sister publication of TheStreet, reported at the time was about $50 million from Kraft Foods Inc., now Mondelez International Inc. (MDLZ - Get Report) . Kraft had inherited its hard candy and gummy brands through its 2000 acquisition of Nabisco Inc., which acquired the brands from Favorite Brands International, a bankrupt TPG Capital LP portfolio company.
Farley & Sathers rolled up several candy companies' unloved brands, including a passel from Hershey Co. (HSY - Get Report) in 2003, the Trolli brand from Wm. Wrigley Jr. Co. (now part of Mars Inc.) and Brach's Confection Inc., which generated sales of about $270 million when Swiss chocolate maker Barry Callebaut AG put it on the block in 2007.
The Deal reported in 2010 that Farley & Sathers retained Goldman, Sachs & Co. to shop the company, but sale talks hit a standstill. Instead, in 2012, Farley & Sathers acquired Ferrara Pan Candy Co., which owns brands including Red Hots and Lemonheads, for undisclosed terms to form Ferrara Candy Co. Ferrara Pan CEO Salvatore Ferrara took the helm of the combined business, majority-owned by Catterton, which took a $189 dividend in June 2016.
L Catterton launched a dual-track process late last year, which Silver wrote cost $18 million, but Reuters reported that Ferrara shelved the auction in February when it could not obtained the desired price of over $1.3 billion, including debt, from interested bidders including Onex Corp.
L Catterton was formed last year through the merger of consumer private equity firm Catterton, French luxury goods company LVMH Moët Hennessy Louis Vuitton SE's private equity unit and LVMH CEO Bernard Arnault's family office.
Currently in its third generation of family ownership, Ferrero has been more acquisitive in recent years, including the 2015 purchase of Thorntons plc for £111.9 million (then $177.5 million) and the acquisition, for undisclosed terms, of Belgian cookie company Delacre, which closed Dec. 5, for undisclosed terms.
Viewing the United States as an area of focus, Ferrero snapped up the Fannie May and Harry London chocolate brands from 1-800-Flowers.com Inc. (FLWS - Get Report) for $115 million in March, shortly after Reuters reported Ferrara was off the block.
"With this acquisition, we are continuing to increase our overall footprint and product offering in the important U.S. market, establishing a presence in new confectionary categories with attractive growth prospects, including gummy and seasonal candies," Ferrero executive chairman Giovanni Ferrero said in a statement. "We look forward to continuing to grow the Ferrara business, investing in its brands to support expansion plans, leveraging its U.S. manufacturing plants and distribution centers, and creating opportunities for its talented people.
Ferrero, headquartered in Luxembourg, is also reportedly a bidder for Nestlé SA's U.S. confectionery business, which hit the block on June 15 and is expected to be sold before the end of the year.
Nestlé, which has struggled to improve margins to appease activist shareholder Third Point LLC, is just one example of the upheaval in the candy and packaged foods space, with Hershey and Unilever NV (UN) recently rejecting acquisitions by Mondelez and Kraft Heinz Co. (KHC - Get Report) , respectively.
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Another American chocolate company, Russell Stover Candies Inc., fetched $1.6 billion when it sold to Swiss chocolate maker Lindt & Sprüngli AG in 2014.
Confectionery companies resistant to large-scale consolidation have focused instead on acquiring healthier-seeming snack brands. Hershey, for instance, has seen its U.S. non-chocolate market share of 14% decline over the past two years, paid over $210 million for barkThins maker Ripple Brand Collective LLC, a year after buying jerky maker Krave Pure Foods Inc. for over $200 million.
Mars, in contrast, is betting on veterinary services businesses to augment M&M and Juicy Fruit sales. The privately held company completed its $9.1 billion acquisition of VCA Inc. on Sept. 12.
Ferrero said in a statement that Ferrara will continue to operate as a standalone unit, maintaining its existing headquarters in Oakbrook Terrace, Ill., and manufacturing and distribution footprint in Illinois, Texas and Mexico. The deal is expected to close this quarter.
Bick previously advised Ferrero on its acquisition of Fannie May.
Ferrero declined to comment beyond the press release. Ferrara and L Catterton did not respond to requests for comment.
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