B&G Foods (BGS) completed its previously announced acquisition of Culver Specialty Brands from Unilever, NV (UN) on November 30, and must now begin delivering on its projections of a smooth integration. At a Bank of America - Merrill Lynch Leveraged Finance Conference on Thursday morning David Wenner, B&G President and CEO re-iterated previous guidance about the positive aspects of the $325 million acquisition. These include:
- $90 million in revenue
- $36 million in incremental EBITDA
- Immediately accretive to earnings
- Accretive to free cash flow (FCF) in 2012
These goals should be relatively easy to achieve. The manufacture of the products is performed by co-packers and the brands are well established. The single biggest challenge faced by B&G will be the shift from a direct sales organization used by Unilever to the use of brokers by B&G.
B&G has a good track record of successfully acquiring and integrating new brands. Previously B&G had acquired brands from other food giants Kraft (KFT) and Nestle (OTC:NSRGY). It has frequently completed integration in 30 days, although because of the holidays, management thinks this one may take closer to 45 days. It also has been able to grow these acquired brands, largely because it is a smaller company and able to focus more resources on them.
The Culver products acquisition is six brands with Mrs. Dash representing 60% of the $90 million in revenue. With the other five brands - Molly McButter, Sugar Twin, Baker’s Joy, Static Guard and Kleen Guard - together generating less than $40 million in annual sales it is easy to understand how they would get "lost" as part of Unilever's $60 billion. B&G, with the acquisition, will have about $600 million in annual sales.
B&G has an extremely attractive dividend of $0.92 that yields more than 4%. There are many investors that will be concerned about the company's leverage of 4.5x and its ability to maintain that dividend. I am not among them. Even after the increased interest payments from the added debt and the recent increase in the dividend, the company will still generate $58 million in excess FCF. This will allow the company to fairly quickly bring leverage back to its targeted level of 4x.
I expect the company to smoothly integrate the new brands and rapidly lower the leverage. The new dividend (recently increased by 9.5%) looks secure and I would not be surprised to see it increase again late next year.