Wenner sees winner in Pirate Brands acquisition

by Eric Schroeder
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PARSIPPANY, N.J. — For B&G Foods, Inc., the purchase of Pirate Brands for approximately $195 million from VMG Partners, Driven Capital Management, Robert Ehrlich and others represents something of a shift in the former’s acquisition strategy, said David L. Wenner, president and chief executive officer.

“The typical business we purchase has a history of declining sales. This business has been experiencing double-digit growth for several years,” Mr. Wenner said in a June 10 conference call with analysts to discuss the acquisition. “We typically have to refresh the brand image and packaging starting from a dead stop position. Here, the brand has a profile that is relevant to today’s trend toward healthy snacking, and the current packaging does an excellent job of conveying a fun brand and ‘healthier-for-you’ snack.

“We feel that this very different positioning and the growth prospects it implies are worth a higher price multiple. And even at this multiple we believe that the price we’re paying for Pirate Brands is consistent with our acquisition criteria for immediately accretive free cash flow, EBITDA and earnings per share. After we integrate the brands and achieve full synergies, which we should expect to do by the beginning of 2014, we project that our adjusted EBITDA for the acquired brands will reach approximately 22% of net sales.”

Mr. Wenner said Pirate Brands is expected to have annualized net sales of approximately $80 million to $90 million, and adjusted EBITDA of $18 million to $20 million.

Founded in 1987, Pirate Brands consists of three separate brands: Pirate’s Booty, Smart Puffs and Original Tings. Pirate’s Booty accounts for about 90% of Pirate Brands’ net sales, but all are positioned as all-natural, gluten-free healthy choices for adults and children, Mr. Wenner said.

“We believe that the Pirate’s Booty line is the most promising in the portfolio in terms of extendability into other snacking products,” he said. “But even in its present form, the business has been growing at a double-digit rate for the past several years.”

Mr. Wenner attributed recent growth to expanded distribution into club and other channels, as well as the development of new package sizes for each channel.

“As with many snack businesses, warehouse clubs are an important part of the business and were approximately 25% of net sales in 2012,” he said. “In this sense, Pirate Brands fits the profile of our existing snacks businesses and should add mass to our current efforts to penetrate those channels. Nearly 60% of Pirate Brands’ 2012 net sales came from supermarkets and the supply chain is a mix of direct and specialty distributor shipments depending on the customers.”

Mr. Wenner said potential growth opportunities exist for expanded flavor offerings in the various sizes as the large majority of sales currently are done in one flavor — white cheddar.

Pirate’s Booty primarily has been marketed toward children, a target B&G does not normally aim for, but Mr. Wenner said the brand’s appeal is broad.

“The brand is oriented toward kids to a great degree,” he said. “But when you look into the data, kids are certainly not the only users by far. The fact that it is in the house tends to mean that everyone is eating the product and, in fact, everyone I have talked to this morning is an adult that says, ‘Oh, I eat that all the time.’ … Although it is positioned as a kids snacking brand, it is certainly something that adults eat as well. Having said that, we think it’s an important proposition that you can extend this brand with the idea that it is a healthy kids snack into other healthy kids snacking occasions. And that is certainly one of the attractions that we have.”

The acquisition of Pirate Brands would be B&G’s third since last fall. In May, B&G acquired the TrueNorth brand from DeMet’s Candy Co. In October 2012, it closed a deal to buy New York Style, the maker of Bagel Crisps, and Old London brands.

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