Dive Brief:
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Vestar Capital Partners, the private equity arm of Goldman Sachs, is said to be considering a sale of Illinois-based Hearthside Food Solutions. However, neither party has publicly revealed any details, Food Business News reported.
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Hearthside is the largest private bakery in the U.S. and a contract manufacturer of granola bars, cookies, crackers and pretzels. A deal could be valued at $2.5 billion, Food Business News noted.
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Since Hearthside was purchased in 2014 from Wind Point Partners for a reported $1.1 billion, the company has acquired Tennessee-based snack bar maker Standard Functional Foods and Illinois-based Oak State Products, another contract baked goods manufacturer. Hearthside now has 21 U.S. production facilities and three in Europe.
Dive Insight:
Given the ever-growing popularity of snack products — a study by Datassential reveals that consumers, on average, eat about four to five snack foods a day — Hearthside appears well-positioned to command a high price should it find a buyer. The company has earnings before interest, tax, depreciation and amortization of about $120 million, Reuters reported.
Of the company's two dozen production plants, 11 of them are equipped to produce snack bars, according to Food Processing. That capability, plus the firm's extensive reach and existing contracts for private-label manufacturing, should make it a very appealing acquisition target despite a potentially hefty price tag.
Goldman and Vestar have spent time and effort to build up Hearthside since buying it three years ago. Still, they may not be interested in keeping such a large CPG contract manufacturer on the books if they can flip it to a Big Food firm and move the resulting capital to another brand or more acquisition targets.
There's also the dicey business of contract manufacturing itself. According to Baking Business, a co-manufacturing relationship can end up between two competitors or former competitors when it's a post-acquisition situation, so Hearthside and potential buyers have to be even more cognizant about value and overhead.
"We’re always pressured to reduce our cost, ultimately for the end consumer, but also for our customers," Dwayne Hughes, Hearthside's senior vice-president of supply chain, told Baking Business last fall. "If we don’t stay competitive, our customers could potentially take the business in-house or even decide to invest in their own facility. We have to keep our quality scores up, consumer complaints down and costs low."
Despite those pressures, the market for snack bars is going nowhere but up. According to a recent Nielsen study, individual bars had the strongest absolute dollar growth, with an increase of $633 million from 2013 to 2016. Barring any unknown liabilities, Hearthside looks like a tasty acquisition target for the right buyer, if and when its deep-pocketed owner decides to sell.