- Ferrara Candy Co. is preparing to participate in an auction for Nestle's U.S. candy business, Reuters reported, citing people familiar with the matter.
- Nestle said in June it was exploring strategic options for its candy operations, which includes popular brands such as Butterfinger, Baby Ruth, SweeTarts and Nerds. The unit, which some analysts estimated could be sold for as much as $2 billion, posted sales of about $922 million in 2016.
- Earlier this year, Ferrara explored a sale with a value of more than $1.3 billion, but the candy maker later ended the process following disagreements over price, Reuters said.
Ferrara's candy roster is chock-full of household favorites including Brach's, Now and Later, Atomic Fireballs and Lemonheads. After the sweets maker, founded more than a century ago, tried unsuccessfully to sell itself, a purchase of Nestle's candy business would mark a significant change in direction for the company. A larger Ferrara would likely have more sway in negotiating placement and distribution of its larger basket of products in grocery and convenience stores.
So far, the company's focus has been predominately hard candy brands. Adding Nestle's U.S. sweets business, including its chocolates, would give it an immediate foothold in the popular and increasingly competitive space. Nestle currently is the fourth-largest U.S. chocolate producer with a 4.9% market share, according to Statista. The U.S. candy business is fiercely competitive with Hershey — the maker of Reese's, York Peppermint Patties and its namesake bar — and Mars, whose roster of brands include Twix, Snickers and M&Ms — controlling nearly 75% of the market in 2016.
Even as consumers gravitate toward fresher foods and healthier products, chocolate remains in a strong position, since people haven't given up the desire to indulge. Data from Statista shows U.S. chocolate consumption continues to steadily rise, with sales expected to reach $22.4 billion in 2017, an increase of $2.3 billion from just four years ago. Ferrara would be ideally positioned to benefit from the growth in chocolate with this deal.
For Ferrara, which is privately owned, it's difficult to know if it could easily assimilate the chocolate operations into its existing business, how well it could compete with the other large candy giants, or whether it would be able to afford to spend an estimated $2 billion for the business without hurting its long-term finances. To be sure, having private equity on its side should make it easier to digest an acquisition of this size. It would be a big move for the company, but it's a risk worth taking — it's rare that a staple of iconic candies like these are put up for sale.