Shiver me timbers! Hershey buys Pirate Brands for $420M
- Hershey will purchase Pirate Brands, maker of better-for-you snacks — including Pirate's Booty, Smart Puffs and Original Tings — from B&G Foods for $420 million, according to a press release from the confectioner. The purchase will be funded with cash on hand and short-term borrowing, and is expected to close in the fourth quarter.
- The new snack brands will operate within Hershey's Amplify division in Austin, Texas. Hershey previously purchased SkinnyPop owner Amplify — which had been its own publicly traded company — for $1.6 billion in December. In the Pirate Brands acquisition release, the company stated that this division is concentrating on driving growth in the warehouse snacking aisle.
- "Pirate’s Booty is a leading cheese puffs brand loved by moms and kids as a better-for-you treat," Mary Beth West, Hershey's chief growth officer, said in the release. "We expect the full Pirate Brands portfolio to be a great fit for Hershey’s growing Amplify business, which is targeted toward consumers who are looking for great-tasting snacks without compromise."
For a candy company like Hershey that is striving to remake itself as a snack maker, this acquisition may mark the spot for eventual buried treasure.
Pirate Brands, which was initially acquired by B&G in 2013 for $195 million, has performed extremely well for the serial acquirer. According to a November earnings call, the brand was one of B&G's seven largest, which accounted for more than 75% of net sales in the preceding quarter. Back in November, the brand had seen a relatively modest jump in sales of 21%. Product sales continued to snowball, with Pirate Brand seeing net sales increase 54.6% in the most recent quarter, according to B&G's latest earnings report. In Hershey's press release, it states Pirate's Booty has seen 8% year-over-year retail sales growth.
With so much success, why would B&G sell Pirate Brands? No sale plans had been announced, and the transaction seemed surprising. B&G, which owns more than 50 brands, had not overtly been planning to divest anything or increase its investment in any sector.
B&G CEO Bob Cantwell's quote in his company's press release touts the financial opportunity. "The transaction we are announcing today is a great example of our ability to create meaningful shareholder value through accretive M&A by acquiring and investing in on-trend food brands," he said in the release. "We acquired Pirate Brands in 2013 for approximately $195 million and thanks to the passion, creativity and hard work of our dedicated team of employees, we have more than doubled the value of the business in five short years, creating tremendous value for our shareholders."
Perhaps B&G is gearing up for another big acquisition, one which would take a lot of cash, but is likely to pay big dividends down the line. Since the brands that B&G owns now are incredibly diverse — ranging from Cream of Wheat to Green Giant to Ortega — most brands that are up for sale are likely to have powerful adjacencies at B&G. In the release, Cantwell said this sale positions B&G well for future acquisitions.
What's easier to see is why Hershey would be interested in Pirate Brands. Hershey CEO Michele Buck has said it's her goal to turn Hershey into an "innovative snacking powerhouse." The company best known for its namesake chocolate had made some definite shifts in that direction, buying meat snacks company Krave in 2015 and snacking chocolate barkTHINS in 2016. Last year's Amplify acquisition was the biggest so far, both in the amount paid for the SkinnyPop, Paqui and Oatmega maker and in the reach it gave Hershey in the snack space. Amplify has been a winning gamble for Hershey so far, increasing North American net sales by 5.6%, according to the company's most recent earnings report.
While the Amplify acquisition brought a top snack brand to Hershey — SkinnyPop has about a quarter of the marketshare for RTE popcorn — more household name brands can help the company dig up more treasure in the snacking category. Pirate Brands' snacks are successful, fitting into the better-for-you snacking niche that many companies crave.
Follow Megan Poinski on Twitter