TreeHouse Foods, Inc. announced an agreement to sell a significant portion of its meal preparation business to Investindustrial for $950 million. TreeHouse is shedding this segment to instead focus on its snacking and beverages business, which enjoys both higher growth and margins.
Structured as a stock purchase, the deal values the divested meal prep business at 13.6x estimated 2022 EBITDA and consists of approximately $530 million in cash and $420 million in senior secured debt provided by TreeHouse. Investindustrial is a “European group of independently managed investment, holding and advisory companies with 11 billion of raised fund capital [and] ESG principles deeply embedded into the Firm’s core approach.”
TreeHouse focuses on “better-for-you, natural and organic products,” with the goal of “mak[ing] high quality food and beverages affordable to all.” TreeHouse had been exploring a sale of its entire company, but its board changed course in March, citing the shift in the macroeconomic and financing environment since they began exploring a full sale.
With this transaction, it is spinning off segments focused on “pasta, pourable and spoonable dressing, preserves, red sauces, syrup, dry blends and baking, dry dinners, pie filling, pita chips and other sauces.” TreeHouse cited two primary reasons for the divestiture: simplification and inflation.
TreeHouse operates in 29 different product categories using approximately 40 production facilities across North America and Italy. Analysts have warned that bigger is not always better and firms’ voracious appetites to add more business lines may come back to haunt them. TreeHouse’s board appears to agree, stating, “the long-term prospects for private label and for TreeHouse remain highly compelling, but the business mix is complex. That feedback further validates the Company’s strategic plan for simplification and growth.”
Surging inflation has also dramatically affected TreeHouse’s course. As cash-strapped buyers switch from national brands to less expensive store-owned labels, inflation has helped TreeHouse. Private label goods — such as TreeHouse’s – typically sell for 35% to 40% less than their brand named competitors.
Record Inflation Boosts TreeHouse’s Earnings
While TreeHouse has likewise experience increased costs, it has been effective in passing much of those onto consumers, stating in its latest earnings report, “The net sales increase of 19.4% was primarily driven by favorable pricing to partially recover commodity and freight cost inflation and increased volume within the Snacking & Beverages segment due to growing demand in private label as the consumer seeks lower priced alternatives in the inflationary environment.”
According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions. TreeHouse was advised by law firm Gibson, Dunn & Crutcher LLP, and financial advisers Evercore and Centerview. Investindustrial was advised by Kirkland & Ellis LLP, and financial advisers Lazard, Freres & Co. LLC and BofA Securities, Inc..