Food manufacturer The J. M. Smucker Company SJM has completed the acquisition of privately-held pet food maker Big Heart Pet Brands in a cash-and-stock deal of about $6 billion. This includes the payment of Big Heart Pet Brands’ net debt of about $2.5 billion, which was refinanced by the company. The deal was announced on Feb 3.
San Francisco-based Big Heart Pet Brands is a leader in premium-quality, branded pet food and pet snacks, and has placed Smucker in the $21 billion pet food and snacks category, one of the largest and fastest growing categories in the U.S.
The acquisition is expected to contribute about $2.4 billion to net sales in fiscal 2016, with an estimated annual growth rate of 4%–5% over the next several years. It will also be slightly accretive to the company's fiscal 2016 earnings. Adjusted earnings are expected to increase approximately 10% in both fiscal 2017 and 2018. Annual synergies of approximately $200 million are expected within the first three years of ownership, with approximately $40 million to $50 million of synergies expected to be realized in fiscal 2016.
Big Heart’s iconic brands including Meow Mix, Milk-Bone, Kibbles 'n Bits, 9Lives, Natural Balance, Pup-Peroni, Gravy Train, Nature's Recipe, Canine Carry Outs and Milo's Kitchen will further strengthen the company’s solid portfolio consisting of leading brands like Smucker’s, Folgers, Dunkin' Donuts, Jif and Crisco to name a few.
With the rising number of U.S. households adopting pets, we believe the acquisition to have strategic advantages for Smucker. In fact, according to the American Pet Products Association, about 39% of the estimated $59 billion pet-related expenditure was on food last year. Keeping these facts in mind, Smucker believes that the pet food business has potential to become a key revenue driver, besides its existing food and beverage businesses.
Of late, Smucker has been actively pursuing acquisitions in both the U.S. and overseas. In early Sep 2014, Smucker completed the acquisition of Seattle, WA-based Sahale Snacks, Inc., which manufactures and markets premium, branded nut and fruit snacks. The acquisition is expected to contribute approximately $25 million to fiscal 2015 sales. (Read: J.M. Smucker Expands Portfolio, Closes Sahale Snacks Buy).
Even before that in Aug 2013, the company had made the acquisition of Enray Inc., a manufacturer and marketer of premium organic, gluten-free ancient grain products. Smucker took control of Enray’s flagship brand truRoots, which has helped the company to grow across the rapidly growing gluten-free market. The acquisition is expected to add sales in excess of $50 million annually, thereby increasing the scale of the company’s natural foods and specialty businesses.
Other acquisitions by Smucker include Seamild in China, Hillshire Brands Company’s North American foodservice coffee and hot beverage business in 2012, and the coffee brands and business operations of Rowland Coffee in 2011. These acquisitions have also added iconic brands to the company’s portfolio and strengthened its presence in the U.S.
Smucker holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer staples sector include Monster Beverage Corp. MNST, Supervalu Inc. SVU and Flower Foods, Inc. FLO. While Monster Beverage sports a Zacks Rank #1 (Strong Buy), Supervalu and Flower Foods hold a Zacks Rank #2 (Buy).
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