Hershey Co. expects to grow its business and find some cost synergies, particularly in areas such as sourcing of ingredients and machinery, with its recent acquisitions of two snack makers, Chief Financial Officer Steve Voskuil said.
The candy and snack maker last week said it would spend about $1.2 billion to acquire Dot’s Pretzels LLC—the company behind Dot’s Homestyle Pretzels—and Pretzels Inc., a manufacturer of pretzels for Dot’s Pretzels and other customers, from an affiliate of investment firm Peak Rock Capital.
The deals boost Hershey’s portfolio of snacking products and come at a time of record mergers and acquisitions. Transactions involving U.S. businesses totaled $2.26 trillion as of Nov. 16, nearly double the amount during the prior-year period when companies spent $1.13 trillion on such deals, according to Refinitiv, a data provider.
Hershey said the pretzel deals are the next step in its vision to become a snacking behemoth. The Hershey, Pa.-based company has some pretzel-related products already, including chocolate-covered pretzels. The deal is designed to give Hershey additional pretzel expertise and grow its manufacturing operations in that category, the company said. Hershey has been working in recent years to diversify its business beyond candy and chocolate as consumers lean toward healthier snacks.
“Obviously, there are overlaps between [our] manufacturing and Dot’s Pretzels,” Mr. Voskuil said this week, adding that the transaction enables the company to bring the pretzel business in-house and better align its sourcing. Hershey previously sourced pretzels from external suppliers, according to the CFO.
There would be some cost synergies in procurement and in sourcing, “but the deal is more about unlocking growth,” Mr. Voskuil said.
The two businesses generated about $275 million in estimated aggregate net sales during the 12 months ended in September, Hershey said last week. Mr. Voskuil said the company doesn’t have a target on cost savings from synergies.
Hershey will finance the transactions with cash on hand and commercial paper, an unsecured short-term debt instrument, Mr. Voskuil said. Hershey had $675.5 million in cash and cash equivalents as of Oct. 3, down from $1.14 billion at the end of December. Mr. Voskuil declined to comment on how much commercial paper the company would issue for the deals. “We have a lot of cash flow,” he said.
Analysts at ratings firm Moody’s Investors Service said the transactions would be credit positive given that they expand Hershey’s reach in a growing category, according to a note.
Hershey has been on the lookout for potential acquisition targets for months. The company bought Lily’s Sweets LLC, a confectionery brand, in June for roughly $425 million. Hershey also has a venture fund for investments in new brands and early-stage technologies.
The deal discussions for last week’s transactions took place in a hybrid fashion, Mr. Voskuil said, with some meetings happening in person while others were remote. “That was probably the most complicated: The fact that there were two different acquisitions that were agreed [to] at the same time,” Mr. Voskuil said.
Write to Nina Trentmann at [email protected]
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