There is no shortage of “old line” food manufacturers looking to acquire growth brands.
Last night Hormel Foods announced it will acquire Applegate for $775mm. The strategic fit make sense given Applegate's strong brand position in the natural and organic prepared meats category, a segment in which Hormel has limited exposure.
Hormel expects the acquisition to be neutral to FY15 EPS and accretive by $0.07-0.08 per share in FY16. The accretion will likely come from revenue synergies and not cost savings. Hormel will likely improve the top-line growth profile, as Applegate will benefit from expanded sourcing and increased distribution.
Not surprisingly on the back of this news we are seeing a positive reaction to some of the other names that could also be in play: LNCE, WWAV, JJSF and PF. We would also note that HAIN is not responding as favorably to recent M&A news.
We continue to believe that HAIN is not a target, due to the structure of the company and collection of brands that do not participate in the “organic category.”
Below is a one page summary of the Hormel/Applegate deal:
