Consumer packaged food and beverage firm WhiteWave Foods has acquired organic food brand Earthbound Farm from its existing shareholders led by Kainos Capital and founders Drew and Myra Goodman, for approximately $600 million in cash.
“Earthbound Farm will add a totally new platform and channel to WhiteWave’s business. It is an excellent strategic fit and a natural extension of our business that reaffirms WhiteWave’s leadership in the organic foods and beverages industry in North America,” said Gregg Engles, chairman and CEO of WhiteWave during a conference call yesterday morning announcing the deal.
“Fresh foods are one of the most attractive, emerging trends in the food industry today and the market for organic products continues to grow steadily,” Engles said. “With Horizon Organic and Earthbound Farm, WhiteWave will now provide the two most popular gateways for consumers to enter into the organic category–produce and dairy.”
WhiteWave—which manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe under the Silk, Horizon Organic, International Delight and Land O Lakes brands—spun off from US dairy company Dean Foods Co. last year . The firm said in October 2012 it planned to grow by making acquisitions outside of its core products.
With anticipated 2013 net sales of more than $500 million, Earthbound Farm is the largest organic produce brand in North America. Earthbound also produces and markets roughly 100 organic fresh fruits and vegetables, frozen fruits and vegetables, and dried fruits and snacks.
Strong growth potential in organic packaged salads
In particular, WhiteWave is attracted to the potential Earthbound represents in the organic packaged salad segment—where it controls 45% of total market share and 60% of branded organic packaged salad market share, Engles said during the call.
“Consistent with WhiteWave’s high growth category, the significant potential with packaged salad is highly attractive,” he said. “We’ve seen progressive growth in this segment, with a five-year compound annual growth rate of 15%. Organic packaged salad continues to grow, reaching 21% of overall salad sales.
“We believe the conversion from conventional to organic salad will continue. We’ve seen a historic shift of one or two percentage points each year.”
When asked about the risks of entering the produce category given the spate of recalls in recent years, WhiteWave chief financial officer and executive vice president Kelly Haecker noted that because Earthbound is a highly vertically integrated business (it produces more than half the requirements for its salad business through internal farms with the rest coming from strategic farming), it has a “competitive advantage in terms of cost and food safety,” he said.
The acquisition, which is subject to regulatory approvals and customary closing conditions, is expected to be completed during the first quarter of 2014.
WhiteWave said it plans to operate Earthbound Farm as a separate business unit, based in San Juan Bautista, CA, with no anticipated operational changes resulting from the acquisition.
The company plans to fund the transaction with borrowings under its existing credit facilities, which it intends to boost by $500 million.
JP Morgan was financial advisor and Haynes and Boone LLP was legal adviser to WhiteWave. Barclays and Houlihan Lokey were financial advisors to Earthbound Farm, while Weil, Gotshal & Manges and Cooley LLP acted as legal advisor.