- Hormel Foods is acquiring Sadler's Smokehouse, a pit-style barbecue brand based in Texas, for $270 million using cash on hand. The deal was announced Thursday with the company's latest earnings and is expected to close in March.
- Sadler's Smokehouse is a family-owned business that produces premium pit-smoked meats for retail and foodservice. For more than two decades, Hormel Foods has been a customer of Sadler's Smokehouse.
- Sadler's Smokehouse will continue its operations from its facility in Henderson, Texas, and will report to Hormel's Refrigerated Foods segment.
Two years ago, Hormel's CEO told Food Dive it wasn't done looking for acquisitions, and would consider more as opportunities present themselves. This latest deal expands the meats Hormel offers to retailers and foodservice vendors. Sadler's Smokehouse's annual sales, excluding transfers to Hormel Foods, are about $140 million, according to Hormel.
Since Hormel has been a customer of Sadler's Smokehouse for 20 years, it makes sense the company would want to add the brand to its portfolio. Hormel is one of Sadler's largest customers, which produces a variety of slow-smoked beef, pork and chicken products for its Austin Blues Barbeque brand.
Hormel's CEO Jim Snee said in a statement that authentic barbecue is on trend, and this strategic acquisition gives the company another brand to expand into retail and deli channels. As consumers increasingly look for convenient meals, Hormel has the experience to help Sadler's grow its presence in grocery stores — especially as shoppers have been turning to deli sections and specialty meats.
Hormel has been active in recent years in M&A, specifically bulking up its meats. Hormel acquired Applegate Farms for $775 million in 2015, and the brand has since launched pepperoni and plant-based blend burgers. Hormel made two meat company acquisitions in 2017. It purchased premium deli meat and salami company Columbus Craft Meats for $850 million, and spent $425 million for Fontanini Italian Meats and Sausages.
Hormel has previously purchased companies it's worked with. Fontanini was a company Hormel already worked with. In 2007, it bought pizza topping maker Burke Corp, with which it also had a relationship. Snee said in an earnings call this week he sees similarities between the Sadler's acquisition these others because they had worked with the companies before.
For now, Hormel seems to be following the trend of Big Food turning its attention to more bolt-on deals.
"The beauty of these deals is it really is a one-on-one negotiation based on relationships you've built over time," Snee said, according to a transcript of the call. "Could we do a bigger deal? Absolutely. But if we have deals like Sadler's, Fontanini and Burke that come along on a regular basis, we'll take them all day, every day."
It seems that Hormel's M&A moves have been working, since net earnings for the most recent quarter were $242.9 million, up about 1% from the year before. However, this latest purchase will likely hurt its earnings before it helps its bottom line. Hormel said in its earnings that the acquisition is expected to be "neutral to slightly negative to fiscal 2020 earnings," since the company plans to make immediate investments into the business and production facility.