Dive Brief:
- Post Holdings is buying Rachael Ray Nutrish, 9Lives, Kibbles ‘n Bits and other pet foods brands for $1.2 billion from J.M. Smucker Co., the company said in a statement.
- The cat and pet food brands are expected to generate net sales of about $1.5 billion for the fiscal year ended April 30, 2023, Smucker said in its own release announcing the transaction. The deal is expected to be completed early in the second quarter.
- Pet food has become a popular sector for deal-making in recent years as CPGs look to tap into the fast-growing category and consumers show a willingness to spend on their cats and dogs, especially for natural offerings.
Dive Insight:
Under CEO Rob Vitale, Post has not been shy about deal-making. So far, during his 8-year helm, the company has snapped up Almark Foods, a provider of hard-cooked and deviled egg products; Peter Pan peanut butter from Conagra Brands; and Bob Evans’ packaged food business. But prior deals have focused on food, until now.
The push into pet food not only brings Post into the fast-growing pet food category, but it will allow the St. Louis-based company to tap into synergies that occur between human and animal food.
The two categories use some of the same ingredients, allowing Post to increase its purchasing power. It will also help Post when it comes to shipping products to stores as trucks can now load up with Pebbles and Honey Bunches of Oats cereals, peanut butter and Malt-O-Meal as well as Rachael Ray Nutrish and Kibbles ‘n Bits.
“We expect this acquisition to continue our history of creating value with a buy and build approach to categories,” Vitale said in a statement. “These iconic brands are ideally suited to this strategy.”
For Smucker, the sale to Post allows it to “prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential,” CEO Mark Smucker said. Smucker will remain a major player in dog snacks and cat food following the sale, anchored by brands including Milk-Bone and Meow Mix.
“Portfolio optimization and strategic resource allocation remain key drivers of our long-term growth,” Smucker added. “The execution of this proven strategy has helped us streamline our business, improve margin mix, and position the Company to deliver continued shareholder value.”
While Post is a public company, it’s run similar to a private equity firm by focusing on growth, cash flow and “portfolio optimization” rather than simply scale. In short, Post is looking for businesses that not only have some overlap with its existing operations, but that would benefit from its expertise in patiently growing brands over a longer period of time. Its entrance into pet food fits squarely with that strategy.
Once the transaction closes, Post plans to create a new pet food platform within Post Consumer Brands, its division that includes many of its popular store offerings. The company expects there to be additional opportunities for future investments in the pet food category. About 1,000 employees will join Post once the deal is completed.
As part of the purchase, Post is acquiring manufacturing and distribution facilities in Bloomsburg, Pennsylvania and manufacturing facilities in Meadville, Pennsylvania and Lawrence, Kansas.
Revenue in the pet food segment is forecast to reach $57.63 billion this year, compared to the $22.37 billion spent on the category in 2014, according to Statista. The market is expected to record a compound annual growth rate of 8.8% through 2027.
In the CPG sector where annual growth is often in the low-single digits, pet food has proven to be an attractive category for many of the largest players. Post will now compete more closely with these deep-pocketed players.
Nestlé, which owns pet food brands such as Fancy Feast and Purina, has seen the category become a major contributor to its growth. Food giants Mars Wrigley and General Mills, highlighted by its $8 billion purchase of natural pet food maker Blue Buffalo in 2018, all have made major investments in the category.
Post said it will pay $700 million in cash and issue Smucker about $500 million in its shares, giving Smucker a chance to participate in growth at Post, a big part of which will now come from pet food. Smucker purchased Ainsworth Pet Nutrition in 2018, with two-thirds of the acquired company’s sales at the time coming from Rachael Ray Nutrish.
Smucker’s move to divest brands mirrors a broader trend taking place in food and beverages. In the last few years, PepsiCo, Coca-Cola, Nestlé and Unilever, among others, have announced the divestiture of billion-dollar brands and divisions to prioritize resources and focus on faster-growing products.
