B&G Foods Acquires Clabber Girl For Baking Ingredients Lines

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About: B&G Foods, Inc. (BGS)
by: Donovan Jones
Summary

B&G Foods has announced the acquisition of Clabber Girl for $80 million.

Clabber Girl produces a number of market leading baking products.

With the acquisition, BGS is adding a market leading firm to its baking segment.

Quick Take

B&G Foods (BGS) announced it has acquired Clabber Girl Corporation for $80 million.

Clabber Girl manufactures and markets various baking ingredients.

With the deal for Clabber Girl, BGS adds a missing element to its baking goods division as management says it paid a reasonable purchase price multiple for a market leading firm.

Target Company

Terre Haute, Indiana-based Clabber Girl was founded in 1850 to manufacture baking ingredients, including baking powder, cornstarch, and baking soda.

Management is headed by President and COO Gary Morris, who has been with the firm since 2000.

The company’s primary offerings include the branded Clabber Girl, Fleischmann’s, Davis, Rumford, Hearth Club, and KC baking powders and the Royal brand of gelatins, mousses, puddings, pie fillings, cheesecake, and flan.

Additionally, the firm offers production services for private-label baking ingredients.

Market & Competition

According to a market research report by Zion Market Research, the global baking ingredients market was valued at $11.8 billion in 2015 and is projected to reach $15.73 billion by 2021.

This represents a CAGR of slightly over 5% between 2016 and 2021.

The main drivers for this expected growth are the increasing demand for food and rising population.

The Asia-Pacific region is anticipated to grow at a faster rate due to the increasing demand for baking products in the region.

Major competitive vendors that provide baking ingredients include:

  • Associated British Foods (ABF.L)
  • Cargill
  • Kerry Group (KYGA.L)
  • Corbian
  • British Bakels
  • Muntons
  • AAK UK
  • Dawn Foods

Source: Sentieo

Acquisition Terms and Financial

B&G disclosed the acquisition price as $80 million in cash per a form 8-K.

As to the effect on its future financial results, BGS stated that it,

expects the acquisition to be immediately accretive to earnings per share and free cash flow and projects that the acquired business will generate approximately $70 to $75 million of net sales on an annualized basis...

B&G Foods funded the acquisition and related fees and expenses with cash on hand and revolving loans under its existing credit facility.

A review of the firm’s most recent 10-Q filing indicates that as of March 30, 2019, BGS had $11.3 million in cash and equivalents and $2.2 billion in total liabilities of which $1.6 billion was long-term debt.

Free cash flow for the thirteen weeks ended March 30, 2019, was $41.7 million.

In the past 12 months, BGS’s stock price has dropped 19.34% vs. Associated British Foods (OTCPK:ASBFY) drop of 10.26%, as the chart below indicates:

Source: Sentieo

Positive earnings surprises have occurred in seven of the last twelve quarters, as the chart shows below:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has improved since the middle of 2018, as the linguistic analysis chart shows below:

Source: Sentieo

BGS acquired Clabber Girl to add its baking ingredients to its portfolio of brands.

As B&G President and CEO Kenneth Romanzi stated in the deal announcement,

This acquisition is consistent with our longstanding acquisition strategy of targeting well-established brands with defensible market positions and strong cash flow at reasonable purchase price multiples. Clabber Girl Corporation is the number one manufacturer of branded retail baking powder and also holds leadership positions in baking soda and corn starch.

By adding Clabber Girl to its portfolio, B&G fills a hole in its middle-of-the-store baking goods offerings, so strategically it is a smart move.

Disclosure: I am/we are long BGS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.