Whereas 2013 saw several U.S. firms undertake acquisitions across the globe – and one mega deal that made a U.S. firm owned by the Chinese – part of last year and the first half of 2014 seem to be playing out as a time of renewed interest in domestic deals for U.S. and Canadian food and beverage processors.
During the middle of this year, the world became a more unstable place; one less friendly to U.S. and Canadian firms doing business. At the end of July, Argentina declared bankruptcy. The Palestinians and Israelis are fighting again. Russia is destabilizing (to put it mildly) Ukraine. Then there’s Afghanistan, Iraq and Iran.
Is this a good time to invest in overseas markets?
Past Top 100© reports have chronicled the ambitions of domestic food and beverage processors to expand or buy firms overseas. As we look at the past year’s mergers and acquisitions, we see a trend toward “buying American” and growing horizontally, broadening the portfolio, maybe even transforming the company, rather than establishing a beachhead in some far-off land.
A case in point is the pending purchase of Hillshire Farms by Tyson Foods. While the brief bidding war was started by Pilgrim’s Pride, which is 75 percent owned by Brazilian firm JBS SA, Tyson outbid its chicken competitor with an offer of $8.55 billion. A month later, to help pay for the big buy, Tyson agreed to sell its poultry businesses in Mexico and Brazil to Pilgrim’s Pride and JBS.
For years, Tyson’s goal has been to lessen its reliance on commodity animal proteins and to grow its value-added/prepared foods business. Hillshire will give Tyson a complementary portfolio of recognized brands with particular strength in the breakfast category, currently an attractive and fast-growing day part.
Campbell Soup is another example. Admittedly, its biggest deal of the past year was the acquisition of Denmark’s Kelsen Group A/S for approximately $325 million. Kelsen makes baked snacks sold in 85 countries. The company’s primary brands include Kjeldsens and Royal Dansk, and it is a market leader in the assortment segment of the sweet biscuits category in China. It fits in well with Campbell’s Pepperidge Farm unit.
Moreover, Campbell has broadened itself domestically. It vaulted into a completely new category with the June 2013 acquisition of Plum Organics for $249 million. The Plum Organics brand is the No. 4 brand of baby food in the U.S. and the No. 2 brand of organic baby food. A year earlier, Bolthouse Farms took the soup company into fresh produce and high-end juices. On the other hand, Campbell last year sold its simple meals business in Europe to CVC Capital Partners and exited its Russian business. But it hasn’t made a single purchase this year.
Post Holdings was very busy last year and hasn’t taken a breath in 2014, using a string of domestic acquisitions to broaden the only-two-year-old cereal company into more of a horizontal food processor. Late in 2012, it bought Dakota Growers Pasta Co. from Viterra Inc., and during 2013 Post acquired five companies: Golden Boy Foods, Dymatize Enterprises, Agricore United Holdings Inc., Hearthside Food Solutions’ private label cereal, granola and snacks business, and Premier Nutrition Corp. Post will double in size in next year’s Top 100 list when it includes the $1.9 billion in sales from 2014 acquisition Michael Foods (as well as the smaller purchase American Blanching Co.).
Similarly, WhiteWave Foods, the organic milk and substitute milk spinoff from Dean Foods, quickly found its financial legs and bought domestic organic produce company Earthbound Farm early this year. Produce, not milk.
Speaking of former Dean Foods units, Morningstar Foods, which made Friendship cottage cheese and various private-label dairy products like coffee creamers under Dean’s ownership, was bought by our neighbor to the north, Saputo Group. With that addition of 1.6 billion U.S. dollars in sales, Saputo now has more sales in the U.S. than in its homeland Canada.
Grupo Bimbo already had more sales north of its Mexican border with U.S. baking acquisitions over the past decade. But it will take another jump in sales this year (and showing up on next year’s Top 100 list) when it consumes Canada Bread, with $1.6 billion in sales. Canada Bread was 90 percent owned by Maple Leaf Foods.
There are other examples of foreigners buying into U.S. food firms. This year started with a blockbuster. Japanese spirits and beverage company Suntory in January offered to buy American distiller Beam Inc. in a deal valued at $16 billion. As a result, three major Kentucky distilleries will be Japanese-owned (Jim Beam and Maker’s Mark are included in the Beam sale, and Four Roses is owned by Kirin). A fourth, Wild Turkey, is owned by the Italian spirits company Campari.
And while foreigners’ yen for Kentucky bourbon caused a stir, that xenophobia was nothing compared to the most debated deal of the past year: the $7.1 billion acquisition of Smithfield Foods Inc. by China’s Shuanghui International Holdings Ltd., which closed last September. (Shuanghui has since renamed itself WH Group Ltd.)
Del Monte, which struggled as a provider of canned fruits and vegetables, sold its heritage food lines last October to longtime Asian licensee Del Monte Pacific Ltd. for $1.675 billion. Thus continued a transformation that began years earlier with Del Monte acquiring a number of leading pet food brands (Kibbles and Bits, MilkBone, Gravy Train, 9 Lives, Meow Mix). The final piece (so far) was the July 2013 acquisition of Natural Balance Pet Foods Inc., a maker of premium pet products for dogs and cats sold throughout North America. Subsequently, Del Monte changed its name early this year to Big Heart Pet Brands. As a result of sales estimated at about $500 million, the Del Monte name, now under foreign ownership, falls off our Top 100 chart. But Big Heart Pet Brands debuts at No. 55.
While not quite in the same vein, it looks like H.J. Heinz Co.’s majority owner is 3G Capital, a Brazilian investment firm, although Omaha’s Berkshire Hathaway, with Warren Buffett at the helm, appears to own nearly half. That 2013 transaction was worth a whopping $28 billion, including the assumption of Heinz’s outstanding debt.
Another major 2013 event that realigned the food industry for this year was the liquidation of Hostess Brands Inc. Following its bankruptcy filings in late 2012, pieces of Hostess were sold at auction. The biggest piece – the Twinkies, Mini Muffins, Cup Cakes, Ho Hos, Zingers and Suzy Q’s brands plus five bakeries – went to a new Hostess Brands LLC (No. 87), owned by investment firms Metropoulos & Co. and Apollo Global Management LLC. Flowers Foods got bread brands Wonder, Merita, Home Pride, Butternut and Nature’s Pride, plus 20 bakeries. McKee Foods Corp. snagged the Drake’s snack cake business. Grupo Bimbo SAB de CV emerged as the winning bidder for assets related to Hostess’ Beefsteak bread business. And United States Bakery got a small piece.
Examining the numbers and new names
The biggest sales gainer of the past year was Constellation Brands, sales of which leapt $2 billion. “If ever there was a game changing year for Constellation Brands, it was fiscal 2014,” wrote Pres/CEO Robert Sands. “We completed the most transformational acquisition in the history of our company, gaining ownership of the Crown Imports beer business [Grupo Modelo’s Corona brands and China’s Tsingtao] while achieving solid financial performance. The beer deal nearly doubled the size of Constellation, and positioned the company as the largest multi-category supplier for beer, wine and spirits in the U.S.”
Other big gainers were Dannon (+28 percent), Boston Beer Co. (+26 percent) and Hearthside Foods (+25 percent). Sales dropped 34 percent at Dole and 21 percent at Dean, both the result of planned divestitures.
In addition to being a list of bigness, our Top 100 chart also provides a snapshot of the health of the food and beverage business. Out of these 100 companies, 65 enjoyed sales increases of at least 1 percent in their most recent fiscal year. Only 12 recorded decreases.
Looking at net income (the base is smaller because of all the private companies on the chart), 61 were profitable. Only three (Big Heart Pet Brands, Chiquita Brands and Diamond Foods) recorded net losses for the year. Last year there were four in red ink, with Chiquita and Diamond as repeat offenders. Chiquita nearly eliminated its 2012 loss of $405 million; Diamond nearly doubled its loss. 41 were more profitable than they were the year before; 17 were less so.
The biggest sales increases among the big companies belong to Cargill (up 97 percent to $2.31 billion) and Kellogg (up 88 percent to $1.8 billion).
Every year there is an ebb and flow of companies in the food and beverage business. Some are new, some grow just big enough to make our Top 100 list (the smallest company comes in at $794 million) and some we just didn’t have on our radar screens. Cal-Maine Foods Inc. is in that last group. The country’s biggest producer of eggs, and itself a leader in that category’s consolidation, Cal-Maine debuts on our chart at No. 76.
Another one that’s been under our radar is Johnsonville Foods. The privately held sausage maker has been quietly surging in recent years. We had to estimate its earnings at $1 billion.
We’ve had our eye on Boston Beer for a while, but it was never big enough to make the list – till now. The maker of Samuel Adams beer (and more recently an acquirer of several small regional brands) grew enough in 2013 to take the final spot.