Annie’s/So Delicious deals just the beginning says corporate finance expert: CPG giants now eyeing up natural firms with revenues of $10-25m

By Elaine Watson contact

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Mike Burgmaier: 'Many strategic acquirers will say ‘Why wait until sales hit $100 million? Let’s buy the growth engines earlier while can.’
Mike Burgmaier: 'Many strategic acquirers will say ‘Why wait until sales hit $100 million? Let’s buy the growth engines earlier while can.’

Related tags: Organic food

While the jaw-dropping amount that General Mills paid for Annie’s ($820m) raised some eyebrows, it was “worth it”, says one corporate finance expert who says big CPG firms are increasingly eyeing up acquisition targets in the natural and organic foods space at a much earlier stage of their development.

Echoing comments made back in 2012 by Coca-Cola’s chief procurement officer Ron Lewis (click HERE​), who said Coke needed to make "more, earlier bets​”, Mike Burgmaier told FoodNavigator-USA that legacy food brands are now looking at firms with revenues of less than $50m.

Burgmaier, managing director at Silverwood Partners  - a specialized investment bank that provides M&A, private placement, and advisory services - has worked on several deals in the natural and healthy living sector, and said the Annie’s deal and the $195m acquisition of So Delicious by WhiteWave Foods were “about the future​”.

Many traditional, legacy ‘conventional food’ brands are in free fall and newer, healthier ‘natural’ brands are in long-term growth mode

Many big CPG firms are not delivering volume growth in their core categories any more in the North American and European market at least, so are 'buying in' innovation/growth through acquiring smaller, more innovative firms in sexier areas of the market or seeking to build a presence in faster-growing emerging markets, he said.

The Annie’s transaction and WhiteWave’s acquisition of So Delicious are about the future. Many traditional, legacy ‘conventional food’ brands are in free fall and newer, healthier ‘natural’ brands are in long-term growth mode. 

“This trend seems irreversible at this point. Because of that, we anticipate many M&A transactions in the natural/organic space over the next 18-24 months, with both larger and smaller targets. Many strategic acquirers will say ‘Why wait until sales hit $100 million? Let’s buy the growth engines earlier while can.’

He added: “Many deals from this point forward will be with companies smaller than Annie’s and even SO Delicious. Companies in this sector can sell to large strategics when their sales are as low as $10-25m, and there are very few assets out there in the $100mm+ size that are natural or healthy. 

Annie's products
Annie's generated sales of $204m in 2013. General Mills paid $820m to buy the business.

“But the growth is real as is the trend.  We believe that strategics will continue to become even more aggressive in the sub $100m – even sub-$50m – revenue size for acquisition targets.”

Several successful natural/organic brands today have actually decided to skip the traditional natural channels for their launch

But is there a risk that as more big CPG firms vacuum up firms in this space and the products start appearing in more mainstream grocery channels, that consumer perceptions about these brands and the 'natural' and 'organic' segment will change?

And should the social media backlash against Annie’s for ‘selling out’ to General Mills be a cause for concern?

Burgmaier doesn’t think so: “Most consumers are unaware as to who the owners of the natural/organic brands are.  Obviously some do know – but that is a vocal minority.  There is much more benefit for the large strategics to extending distribution to the mainstream grocery aisles than risk from consumer backlash. 

“Several successful natural/organic brands today have actually decided to skip the traditional natural channels for their launch and have instead successfully gone straight to conventional mainstream grocery and club channels.

almond milk so delicious
WhiteWave Foods has just struck a $195m deal to acquire dairy alternatives expert SO Delicious

“In many ways for the right brands in the right categories, that can be a more successful long-term strategy.”

Because you’re worth it: Annie’s and the $820m price tag

As for the high price tag in the Annie’s deal, said Burgmaier’s colleague Nick Mccoy, Annie’s has proven since its IPO that it can “sustain revenue growth rates near 20%, with the majority of such growth coming from deeper penetration of existing products.

“It has also proven that its brand can extend into multiple categories including frozen, which is valuable to a large CPG company with vast marketing and distribution resources,” ​he added.  

Click HERE​ to read more about a petition asking General Mills to make a formal pledge to uphold Annie’s organic standard, which has been signed by more than 12,000 people.

It says: "It's hard to believe that a mega-rich company like General Mills will stay true to the Annie's Homegrown vibe. Sign the petition and ask General Mills to formally pledge to maintain organic standards for Annie's."

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1 comment

Credit Facilities Request.

Posted by David l. Otaka,

dear Sirs;
Ref.10-25 $Million Dollars on 120/180 DAYS D/A terms basis demand.grants for us.

Confirm send us details information for our careful studies.

Regards,
David l.Otaka

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