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On Thursday morning, General Mills (NYSE:GIS) announced it had acquired natural foods maker Food Should Taste Good. The company will be integrated into General Mills' natural and organic food division, which also consists of Cascadian Farm, Muir Glen, and Larabar. Analysts have praised the move saying that Food Should Taste Good fits in well with the healthier foods that General Mills is moving towards. Through acquisitions and redesigns of its own products, General Mills has become a large player in the organic and natural foods trend.

Food Should Taste Good is known for potato chips, dipping chips, and crackers. The products come in a range of flavors including: jalapeno, chocolate, and olive. The various food items are created without trans fat. Many of the products offered by Food Should Taste Good are gluten free, kosher, and certified for vegans.

There have been a few recent acquisitions in the food industry including Kellogg's (NYSE:K) purchase of the Pringles brand from Procter & Gamble (NYSE:PG). Consolidation is nothing new in the food and beverage industry and the buyout of a small natural foods company brings a stock back onto my radar as a buyout target.

Today, I think Smart Balance (SMBL) is an acquisition target by General Mills or another large food company. Smart Balance sells products in the following categories:

  • Butter Spreads
  • Milks
  • HeartRight Products
  • Popcorn
  • Oil and Cooking Sprays
  • Mayonnaise
  • Butter Solid
  • Peanut Butter
  • Eggs

Along with its own branded Smart Balance and Earth Balance brands, the company also owns the Glutino brand. The Glutino brand was acquired by Smart Balance to further expand its presence in the growing gluten free food industry.

Smart Balance's recent fourth quarter earnings announcement showed their growth off to potential acquirers. Net sales rose 34% from the previous year to $83.9 million. The company earned $0.03 per share, up from the previous year's $0.01 in the fourth quarter. Sales were helped by new revenue from the acquired Glutino brand. I previously wrote about the Glutino brand and its impact here.

Smart Balance saw nice growth from its Earth Balance brand, with 25% sales growth and its namesake Smart Balance branded milk, which saw 31% sales growth. In 2012, Smart Balance will introduce a new line of spreadable butter as it continues to enjoy and expand its number two position in the spreads market behind Unilever (NYSE:UL).

Smart Balance enjoys a market share of 13.8% in the butter spreads category. The company's milk brands have seen growth and now hold a 2.4% market share in the premium milk category, up from 2010's 1.9% market share. The company's milk is now sold in 67% of supermarkets in the nation. The growing presence of Smart Balance's products makes sales increases highly likely to continue and take share away from larger companies. An acquisition by a large food company could very rapidly expand the presence of the company's brands into new markets and grow sales at a very fast pace.

Smart Balance forecasted 2012 revenue to be in a range of $320 to $330 million. The company expects operating income of $46 to $48 million for the year. For the current March quarter, analysts on Yahoo Finance are expecting $0.06 earnings per share. The company has beat analysts' expectations each of the last four quarters by 40%, 75%, 20%, and 40% respectively.

On their own, Smart Balance is still a strong investment. With shares trading at $6.00, they are roughly the same price as when I last recommended them. The last quarter showed strong growth numbers from Earth Balance brands and the recently acquired Glutino. With a full year of Glutino sales and new product offerings, I see shares breaking free into the $8-$10 range. I think however that 2012 is the year that Smart Balance gets acquired when a large food company like General Mills will recognize the company's strength in brands of natural, healthier foods and make the deal happen.

Source: General Mills Acquires Food Should Taste Good; Is Smart Balance Next Acquisition Target?