General Mills to pay $8B for Blue Buffalo natural pet food maker
General Mills announced Friday that it will buy Blue Buffalo Pet Products, Inc., in an $8-billion deal. The acquisition, expected to close by the end of May, would make the Minnesota-based company the leader in the U.S. natural pet food category.
Blue Buffalo, established in Wilton, Connecticut, in 2002, reported $1.3 billion in net sales in its last fiscal year, according to The Wall Street Journal. It makes natural cat and dog food and treats.
General Mills is the latest big food company to get into the pet food business. Nestle has Purina PetCare, Mars recently bought the VCA, Inc., veterinary and dog care firm and also operates Mars PetCare, Inc., Cargill has its Animal Nutrition segment and Smucker bought Big Heart Pet Brands in 2015. According to Euromonitor, retail pet food sales outpaced packaged foods sales last year with increases of 3.7% and 1.2%, respectively.
Blue Buffalo, which went public in 2015, offers dry and canned products that are either grain-free or made from human-grade meat and produce. It currently has 1,700 employees and would operate in a new pet care unit within General Mills, according to the WSJ. Billy Bishop, Blue Buffalo's CEO, will stay in his position.
This is the largest acquisition so far for Jeff Harmening, who only became General Mills' CEO last June. He is hoping that the Blue Buffalo deal will boost the company's bottom line by giving it a primary position in the wholesome and natural pet food market, which is expected to continue growing.
Millennials, the largest and increasingly influential demographic in the U.S., make up a large chunk of Blue Buffalo's consumer base, General Mills said. The company also noted Blue Buffalo's recent success in e-commerce, stating that it grew 75% more revenue last year compared to 2016.
General Mills is looking for sales and profits to increase within two years of the acquisition, the company said, which would be a welcome boost as the RTE cereal market continues to slide. While its most recent earnings showed an sales bump due to new cereal products, plus its snack brands, General Mills has posted declines in its yogurt brands.
However, the company has shown increasing interest in M&A with 301 INC, its venture capital arm established in 2015, and if the Blue Buffalo acquisition proves successful, look for this activity to continue.