Spectrum Brands Holdings, Inc. (SPB) declared that it has purchased Salix Animal Health, LLC, a privately held dog food supply company, in an all-cash deal, in order to strengthen its Pet food segment further. However, any other financial terms of the agreement remained under covers.
Salix, which generates revenues of nearly $100 million annually, engages in the distribution and production of superior quality natural rawhide dog food, including dog chews, snacks and treats. Also, it is the largest in its industry worldwide.
The vertically integrated structure of Salix, along with its popular Healthy-Hide and Digest-eeze brands, is likely to be accretive to Spectrum Brands’ business and solidify its hold in the rawhide dog treats space. The latter, being a pet sub-segment, is gaining traction in the market with expected international retail sales of roughly $2 billion annually.
The 27-year-old Salix has manufacturing plants in various countries including Mexico, Ecuador, Brazil and Colombia. Its wide reach, use of latest technology, varied product range and strong supply chain network are likely to solidify Spectrum Brands’ Dingo business and create revenue opportunities in Latin America and Europe.
Also, the acquisition is expected to boost Spectrum Brands’ top line and generate cost synergies for its Pet business. The company has been focused on expanding its Pet business since a long time. This is evident as Spectrum Brands recently completed the buyout of Procter & Gamble’s (PG) European pet food business.
The acquisition will form part of Spectrum Brands’ United Pet Group division, which manufactures products for the global pet supplies market, with well-known brands like Tetra, Marineland, FURminator, Nature’s Miracle and Dingo to its credit. Generating annual sales of about $200 million, this business will provide significant product brand equity and has the potential to enhance margins.
Spectrum Brands’ emphasis on expansions and acquisitions in order to drive long-term growth has always appealed to investors. In early 2014, the company had ventured into a new product line with the acquisition of leading animal repellents company, The Liquid Fence Company Inc.
We believe that the company’s focus on expansion via these acquisitions is likely to drive its business and help it provide superior service to its consumers.
Spectrum Brands currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Pilgrim's Pride Corp. (PPC) and Tyson Foods, Inc. (TSN), each sporting a Zacks Rank #1 (Strong Buy).
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