J.M. Smucker (SJM) has announced the acquisition of Ainsworth Pet Nutrition, one of the leading pet food and snack manufacturers and distributors in the United States, for $1.9 billion. The value of the deal excludes an expected tax benefit of $200 million.
The all-cash deal is anticipated to close at the beginning of SJM’s new fiscal year, which will start on May 1, 2018, and will be financed through debt. The company also announced that it is exploring options for its US baking business, which includes a potential sale.
The move comes at a time when packaged food manufacturers are eyeing fast-growing brands and avenues to accelerate sales growth since demand for their traditional brands remains low. They are also divesting non-core, slow-moving brands to spur demand.
The above graph shows that J.M. Smucker’s pet portfolio is likely to expand with Ainsworth, which is a big positive as the pet foods market continues to grow at a healthy rate. J.M. Smucker stated that the addition of Ainsworth’s brands are likely to contribute $800 million to its 2018 sales and is expected to generate $55 million in cost synergies in three years. The company expects Ainsworth to report adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $110 million in the first year after the acquisition and contribute $0.25 to its adjusted earnings.
Recent food deals
Large packaged food manufacturers such as Kellogg (K), Conagra Brands (CAG), McCormick (MKC), Hershey (HSY), General Mills (GIS), and Campbell Soup (CPB) have been acquiring fast-growing brands to reshape their portfolios and accelerate sales growth.
For instance, McCormick’s impressive top-line growth rate benefits from the incremental sales generated by its acquired brands, including RB Foods and Giotti. Kellogg’s top line is gaining from its Parati and RXBAR acquisition. Conagra Brands’ acquisition of Angie’s, Sandwich Bros., BIGS, and Duke’s contributed 2.4% to its sales growth rate during its recently concluded quarter.