Utz Brands has announced that its subsidiaries, Utz Quality Foods and Heron Holding Corp., have entered into an agreement to acquire Truco Enterprises, a seller of tortilla chips, salsa and queso under the On The Border brand, from Insignia Capital Group for a total purchase price of $480 million. The acquisition includes all rights to the On The Border trademarks for use in the manufacture, sale and distribution of snack food products in the U.S. and certain other international markets.
The Hanover, Pennsylvania-based company expects the transaction to be accretive to earnings in 2021 and beyond. The transaction is expected to close in December 2020 and is subject to customary closing conditions, including the receipt of regulatory approvals.
The On The Border brand provides Utz a growing power brand with significant scale in the $6.2 billion tortilla chip retail sales sub-category, as well as a meaningful presence in salsa, queso and dips and a strong innovation pipeline. The transaction also strengthens Utz’s national geographic footprint, with the majority of OTB’s sales in expansion and emerging geographies and enhances the company’s presence in the mass and club retail channels where OTB has a strong position. Utz plans to use its robust sales, manufacturing and distribution platform to expand On The Border tortilla chips, salsa and queso further into channels where OTB is under-penetrated.
“This strategic acquisition will make Utz a significant competitor in the tortilla chip sub-category, where OTB holds the No. 3 position, and also provides us with a meaningful position in salsa, queso and dips,” said Dylan Lissette, CEO of Utz. “In combination with our small but growing premium Tortiyahs! brand, the integration of the On The Border brand will continue to improve Utz’s scale and product diversification, which are important success factors in salty snacks. This acquisition strengthens our competitive position, as well as our financial profile. We are confident this transaction will drive long-term value creation for our stockholders and help position us for continued long-term growth.”
“The Truco team is thrilled to be joining the Utz family of brands, and we are thankful to our partners at Insignia Capital for all of their support,” said Shane Chambers, CEO of Truco Enterprises. “On The Border is now one of the fastest growing tortilla chip brands and the fastest growing dip brand in the category. Utz will be able to leverage its world class Direct Store Delivery network to help expand our brand into new markets. As a result, more consumers across the U.S will have access to our delicious, high quality tortilla chips and dips. I’m looking forward to working with Dylan and the rest of the Utz senior management team to continue our excellent growth trajectory.”
The combination of Utz’s existing portfolio of power brands, which includes Utz, Zapp’s, Golden Flake Pork Skins, Good Health, Boulder Canyon, Hawaiian Brand and Tortiyahs! and the On The Border brand will position Utz as a leading player in the $28 billion U.S. Salty Snack category. Following the transaction, Utz would have approximately $1.3 billion in total retail sales. Along with these topline benefits, Utz expects run-rate cost synergies of at least $5 million.
Compelling financial benefits
Utz expects Truco Enterprises to generate approximately $195 million in net sales in fiscal 2020, an increase of approximately 32 percent compared to the prior year and approximately $50 million of Truco Adjusted EBITDA in fiscal 2020, excluding expected run-rate cost synergies. Truco Enterprises’ business has benefited from the COVID-19 pandemic, which has helped drive strong performance in the company’s mass, club and grocery channels. The combined company’s fiscal 2020 adjusted EBITDA margin is expected to increase to approximately 16 percent from approximately 14 percent for Utz stand-alone, based on the company’s latest guidance. Further, due to Truco Enterprises’ asset-light nature through the use of co-manufacturers, Truco Enterprises’ free cash flow contribution to Utz is meaningful, as capital expenditures are nominal and working capital averages approximately 6 percent of net sales. Utz expects to receive a tax basis step up from the acquisition of intellectual property associated with the trademark with an estimated net present value of approximately $20 million.
Under the terms of the transaction agreement, Truco will become a wholly-owned indirect subsidiary of Utz. The company has debt financing commitments for the full transaction amount from BofA Securities and Goldman Sachs.