Here come those desperate-looking food deals we told you about.
In a two-for-one Merger Monday, Campbell Soup Co. agreed to buy Snyder's-Lance Inc. for about $6 billion including debt, while Hershey Co. is scooping up Amplify Snack Brands Inc. for $1.6 billion. The packaged-food companies are looking to add more popular products in hopes of putting their revenue on better footing: Campbell's sales have fallen for 12 straight quarters, while things aren't much sweeter at Hershey, where growth has been minuscule.
These snacking brands aren't coming cheap, though, with both Snyder's-Lance and Amplify being valued at around 19 times their trailing 12-month adjusted Ebitda. (Hershey pegs its deal at 14.8 times 2017 adjusted Ebitda including synergies.) The median Ebitda multiple for takeovers of U.S. food companies of size in the last five years is about 15, and even that is elevated compared with previous periods.
The richer deal valuations are a function of the pressure on mainstream food makers as shoppers turn to fresh, less-processed and more convenient items, versus canned soup and sugary treats. Upstart brands have jumped on these trends, leaving the less nimble titans of the food industry to dish out fat offer prices to acquire their growth. In October, Kellogg Co.'s brand-new CEO struck a deal for protein-bar maker RXBAR for $600 million, a whopping 5 times its sales this year. Amplify, a perennial target, is best known for Skinny Pop popcorn, while Snyder's-Lance makes Snyder's of Hanover pretzels and Kettle and Cape Cod brand chips.
Campbell delivered a warning signal for industry investors in August when the $15 billion company said it was unable to reach an agreement with a large customer -- said to be Wal-mart Stores Inc. -- over a promotional program for the "soup season," the company's most important time of year. That same month, Amazon.com Inc. completed its Whole Foods Market acquisition, which increased pricing tensions between food stores and their suppliers. Campbell's stock has tumbled 18 percent this year. Now it's stretching its leverage to 4.8 times Ebitda to buy Snyder's-Lance, and Campbell says it may take until 2022 for that ratio to drop to 3, as it suspends stock buybacks.
The next expensive food target to get swallowed will probably be Hain Celestial Group Inc. -- the maker of Celestial Seasonings tea, Terra Chips and Alba Botanica face wash. It's reportedly in talks to sell to Nestle SA. which already this month announced a $2.3 billion purchase of organic supplement maker Atrium Innovations, following the same trend.
The most interesting dealmaker among the tired food giants has been General Mills Inc., which bought Annie's organic macaroni and cheese for $820 million in 2014. Wells Fargo & Co. analyst John Baumgartner upgraded General Mills's stock Monday, writing that the Annie's deal and the company's new Oui yogurt line are "showing traction."
Campbell shows how a desperate expansion strategy can be a double-edged sword, with rising debt and heightened uncertainty the byproducts of a pricey sales jolt. But General Mills may provide early evidence of how it can work if you have the right ingredients.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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