KANSAS CITY — Though limited in number, food and beverage acquisitions during the second quarter reflected widespread strategic trends in the industry. While several companies sought to expand capabilities and channels through transactions, others sold non-core businesses in an effort to focus on higher performers in the portfolio.
“There weren’t a lot of notable deals, but there were some key notable deals,” said Matthew O’Loughlin, a partner with the law firm Manatt, Phelps & Phillips, L.L.P., who counsels public and private companies, investors and private equity groups in the food and beverage industry.
Smaller transactions during the quarter showed heightened interest in health-driven and snack brands. In April, the Hain Celestial Group announced its acquisition of Rudi’s Organic Bakery, and Hillshire agreed to purchase Van’s Natural Foods. At the end of June, TreeHouse Foods agreed to acquire Flagstone Foods, a manufacturer of private label snacks that include nuts, trail mixes and dried fruit.
In general, however, activity remained relatively soft as the economy continues to slowly rebound, Mr. O'Loughlin said.
“The pace of activity is keeping up with last year, year-to-date,” he said.
Here are five key deals that occurred during the second quarter.
Tyson wins bid for Hillshire
|Tyson Foods' acquisition of Hillshire Brands fortifies its position as a leader in retail prepared foods.|
Tyson Foods in July entered into an agreement to acquire all outstanding shares of Hillshire Brands for $63 per share in a transaction valued at approximately $8.55 billion. The deal followed a bidding contest with Pilgrim’s Pride Corp. and was contingent on Hillshire terminating its merger agreement with Pinnacle Foods, which had been announced on May 12.
For Tyson, the acquisition strengthens its position as a leader in retail prepared foods with iconic brands.
“Tyson has been looking to grow its business in a more profitable way, and this was a way for it to try and do that, by adding the branded meat businesses,” Mr. O’Loughlin said. “So, it makes a lot of sense. The question everyone is talking about, though, is valuation and whether the strategic imperative may hurt the financial model.”
Coca-Cola ups stake in Keurig
|Soda makers are investing in higher-growth spaces, such as coconut water and single-serve coffee.|
Four months after the Coca-Cola Co. announced plans to acquire a 10% stake in Keurig Green Mountain for approximately $1.25 billion, company filings with the Securities and Exchange Commission in May showed the soft drink giant planned to increase its stake to 16%.
The move echoes efforts seen in the industry to diversify into higher-growth spaces, Mr. O’Loughlin noted. Similarly, beverage maker Cott Corp. in May acquired Aimia Foods, expanding its portfolio beyond the declining categories of carbonated soft drinks and shelf-stable juices.
“There is perennial talk about the future growth in the soda space and what strategies brands like Coke and Pepsi should continue with,” Mr. O'Loughlin said. “You could call it a defensive play or, more accurately, smart money supporting a potential growth area in terms of the single-use coffee space similar to the entry into coconut water.”
Red Lobster is hauled in
|Darden Restaurants divested Red Lobster to focus on its stronger brands of Olive Garden, Longhorn Steakhouse and others.|
After announcing plans to shed Red Lobster in December, Darden Restaurants sold the seafood chain to Golden Gate Capital, a private equity firm, for $2.1 billion in cash, in May.
“There was a lot of talk about Red Lobster transaction and whether that was good for shareholders,” Mr. O’Loughlin said. “Darden has been dealing with activist shareholders questioning the company’s strategic moves and whether such a disposition makes the most sense for the company. A common strategy for multi-line businesses such as Darden’s is to offload one brand and focus on, and provide resources to focus on, the remaining brands. The question is always, were the right brands retained.”
Darden’s sale of Red Lobster to a private equity firm was among several casual-dining restaurant brands sold during the quarter. In another deal, Sentinel Capital Partners and TriArtisan Capital Partners in May agreed to acquire TGI Fridays Restaurants.
“TGI Fridays was sold to a private equity firm experienced in the restaurant space,” Mr. O’Loughlin said. “TGI Fridays is viewed by many as a brand in need of some reengineering, and this deal is an example of an experienced player looking to do just that.”
Unilever sheds more brands
|The sale of Ragu and Bertolli sauces were part of a string of divestures from Unilever, which is reshaping its portfolio to key in on core brands.|
Unilever continued trimming its portfolio with the May sale of its Ragu and Bertolli sauce businesses. The Mizkan Group, a manufacturer of vinegars, sauces, cooking wines and seasonings, agreed to acquire the brands for approximately $2.15 billion.
Unilever said the divestiture represented one of the final steps in reshaping its portfolio in North America to sharpen the focus within its foods business. Last year, the company sold its Skippy peanut butter and Wish-Bone salad dressing brands.
Post pays $2.45 billion for Michael Foods
|The $2.45 billion deal for Michael Foods represented Post's largest transaction to date.|
In April, Post Holdings agreed to acquire Michael Foods Group, a producer and distributor of eggs, potatoes and dairy products, for $2.45 billion from affiliates of GS Capital Partners, affiliates of Thomas H. Lee Partners and other owners.
The deal represented the largest transaction to date for Post, which has steadily padded its portfolio over the past year with such products as protein bars, peanut butter and pasta.
“Post is obviously showing it’s on an acquisition path, and that’s a core business strategy for them, based on what they’ve done and are continuing to do,” Mr. O’Loughlin said. “What this particular acquisition seems to offer them is not only a different product line into the egg and dairy sectors, but also some distribution relationships and distribution channels, which they can leverage for other products.”