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March 15, 2018

General Mills Acquires Blue Buffalo

MHT Partners  | Consumer Investment Bank

With their recently announced acquisition of Blue Buffalo, General Mills recently got back into the pet food game (after 50 years) in a big way, in order to cater to the newest members of the American family – pets.

At ~$8.3 billion, General Mills is paying a steep price of ~26x EBITDA (and a 17% premium to Blue Buffalo’s closing stock price the day before announcement), but obtaining a strong brand that is on trend with large prominent macro factors at play (clean label, organic and natural ingredients, appeal to millennials, purpose-driven brand, etc). Blue Buffalo, with 2017 sales of over $1.3 billion, including over $250 million from the fast growing and highly coveted eCommerce channel, also adds instant heft to General Mills’ top line, as Blue Buffalo’s sales are ~ 8% of General Mills’ sales. While the market respects the strategic fit of Blue Buffalo, questions regarding the steep valuation, as well as the sustainability of General Mills’ dividend going forward, have driven General Mills stock price down ~7% since the announcement.

This acquisition is yet another example of immense, and sometimes stagnant, consumer packaged goods (“CPG”) companies entering, or bolstering their positions, in the rapidly growing (certainly relative to packaged food) pet/vet space via acquisition. Other recent notable acquisitions include Smucker’s acquisition of Big Heart Brands and Mars’ acquisition of VCA.

General Mills and their CPG brethren are well aware that when it comes to the pet space, “this dog hunts!”, and will undoubtedly continue their pursuit of attractive companies in the space.

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