On the heels of General Mills’ acquisition of Blue Buffalo Pet Products, The J. M. Smucker Co. has signed a definitive agreement to acquire Ainsworth Pet Nutrition LLC in a transaction valued at approximately $1.7 billion, after an estimated tax benefit of $200 million.
The company also announced this week that it will explore strategic options for its U.S. baking business, including a potential sale.
Proposed Ainsworth acquisition
Ainsworth is a producer, distributor and marketer of premium pet food and pet snacks, predominately within the U.S. Approximately two-thirds of Ainsworth’s sales are generated by its Rachael Ray Nutrish brand, which is driving significant growth in the premium pet food category, says Smucker Co. Ainsworth also sells pet food and pet snacks under several additional branded and private label trademarks.
“Ainsworth Pet Nutrition is an excellent strategic fit for our company, as the Rachael Ray Nutrish brand adds another high-growth, on-trend brand to our pet food portfolio,” said Mark Smucker, CEO. “Their team has done a tremendous job growing this business, building Nutrish into one of the most recognizable premium pet food brands in the United States. We look forward to working with the talented Ainsworth team, as we know their passion for pets runs as deep as ours.”
Smucker Co. says it expects to see a number of benefits from the transaction.
“Pet food and pet snacks has become the largest center-of-the-store category in the U.S. food and beverage market, generating over $30 billion in annual retail sales across all channels, and remains one of the fastest-growing categories. This acquisition and the addition of the high-growth Nutrish brand will increase the scale and further accelerate the growth profile of the company’s pet food business,” said Smucker Co. in a statement. “Nutrish holds a leading position and is one of the fastest-growing brands in the premium dry dog food segment within the grocery and mass channels, a key growth driver for the overall category. The addition of Nutrish to the company’s portfolio will significantly expand the company’s presence in this area, complementing the company’s Nature’s Recipe brand.”
Smucker Co. anticipates that the transaction will strengthen its position in dog snacks with the presence of Nutrish in fast-growth segments, including natural meats and long-lasting chews. While Nutrish has a relatively smaller presence in premium cat food, the brand is well-positioned for significant growth in this segment, the company adds.
“Smucker’s decision to acquire Ainsworth Pet Nutrition validates the power of the Ainsworth company mission,” said Jeff Watters, president and CEO of Ainsworth. “At Ainsworth, our goal has been to improve the lives of pet families everywhere by making high-quality pet food accessible to all pet parents. This single-minded focus has resonated with consumers and will continue to resonate under Smucker leadership.”
“After five generations, our family, in partnership with L Catterton, made the decision to sell Ainsworth Pet Nutrition to The J. M. Smucker Company,” said Sean Lang, executive chairman of Ainsworth. “We took great care to find the right home for our brands and our people, to whom we are so grateful. The J. M. Smucker Company, also a fifth-generation family company, is led by a like-minded family to our own. We expect the combined horsepower of these pet care organizations to achieve great things.”
Smucker Co. anticipates the acquired business to contribute net sales of approximately $800 million in the first full year after closing the transaction.
Annual cost synergies of approximately $55 million are expected to be fully realized within three years after closing, with approximately $25 million anticipated in the first year. After giving effect to the first year of synergies, the company expects the acquired business to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $110 million in the first full year after closing the transaction, excluding one-time costs, and contribute approximately $0.25 of accretion to the company’s adjusted earnings per share.
The all-cash transaction, which Smucker Co. will fund with debt, is valued at $1.9 billion, prior to an expected tax benefit related to the acquisition with a present value of approximately $200 million. After factoring in the estimated tax benefit and anticipated annual cost synergies of $55 million, the purchase price represents a multiple of approximately 12 times EBITDA.
Ainsworth is a privately-held company headquartered in Meadville, Pennsylvania. In addition to its headquarters, the transaction includes two manufacturing facilities owned by Ainsworth, which are located in Meadville, Pennsylvania, and Frontenac, Kansas, and a leased distribution facility in Greenville, Pennsylvania. Smucker Co. anticipates that more than 700 Ainsworth employees will join the company in conjunction with the transaction. Ainsworth operates two additional manufacturing facilities that are primarily used to provide contract manufacturing services to third-party pet food distributors. Those facilities and the associated business are not included in this transaction.
The transaction is expected to close early in Smucker Co.’s fiscal year beginning May 1, 2018, subject to customary closing conditions including receipt of required regulatory approvals.
Strategic review of Smucker Co.’s U.S. baking business
The company is reviewing strategic options, including a potential divestiture, for its U.S. baking business that primarily encompasses products sold in U.S. retail channels under the Pillsbury, Martha White, Hungry Jack, White Lily and Jim Dandy brands, along with all relevant trademarks and licensing agreements, and its manufacturing facility in Toledo, Ohio.
Smucker Co. holds a 20-year, perpetually renewable, royalty-free license for the use of the Pillsbury brand name and related trademarks, which is transferable at the company’s discretion. Its baking business in Canada, which consists of products primarily sold under the Carnation, Eagle Brand, Five Roses, Golden Temple and Robin Hood brands, is excluded from this review.
The company’s U.S. baking brands are expected to generate net sales of approximately $370 million for Smucker Co.’s fiscal year ending April 30 and are primarily reported in the company’s U.S. retail consumer foods segment. The review is expected to be completed by the end of the first quarter of the company’s 2019 fiscal year.
“We regularly review our portfolio to ensure it aligns with our strategic priorities,” said Mark Smucker. “Pillsbury, Hungry Jack and Martha White remain iconic brands, and this well-run business has been a solid contributor to our financial performance over the years. However, our current strategic priorities include an increased emphasis and allocation of resources toward growing our coffee, pet and snacking food businesses.”