Smart Balance buys Udi's for $125 million

Smart Balance buys Udi's for $125 million

Smart Balance will acquire Denver-based gluten-free food manufacturer Udi's, which had doubled its sales to $60.9 million the 12-month period ended March 31, 2012.

Smart Balance, Inc. announced it has signed a definitive agreement to acquire Udi’s Healthy Foods, LLC (Udi’s) for $125 million in cash from majority shareholder Hubson Acquisition, LLC, an affiliate of E&A Industries based in Indianapolis, the family of founder Udi Bar‐on, and other minority holders. The acquisition will be treated as an asset purchase for tax purposes. As a result, the Company expects to realize future tax benefits with a present value of approximately $22 million¹, resulting in an effective purchase price of approximately $103 million.

Based in Denver, CO, Udi’s markets gluten‐free products under the “Udi’s Gluten Free Foods” brand in the retail market, and since mid‐2011, food service channels. Udi’s is a leading brand in gluten‐free bread and baked goods. In addition, Udi’s markets other gluten‐free products including frozen pizza and granola. In the twelve month period ended March 31, 2012, Udi’s sales doubled to $60.9 million.

Transaction highlights:

• Smart Balance has agreed to pay Hubson Acquisition, LLC, an affiliate of E&A Industries, the family of founder Udi Bar‐on, and other minority holders a total of $125 million in cash, subject to customary adjustments.

• The acquisition will be treated as an asset purchase for tax purposes. As a result, Smart Balance expects to realize future cash tax benefits with a present value of approximately $22 million, resulting in an effective purchase price of approximately $103 million.

• The acquisition, as well as the refinancing of existing outstanding debt, will be financed with the proceeds of a new $280 million senior secured credit facility, which will include a $40 million revolver.

• The Company expects to close the transaction in July, at which point it expects longterm debt to be approximately $240 million.

• After Smart Balance closes the transaction and determines the final allocation of the purchase price to the assets acquired, including amortizable intangibles, as well as the terms of the financing, the Company plans to be in a position to provide its financial outlook for Udi’s in connection with its Q2‐2012 Earnings Report.

• For 2013, the Company expects the transaction to be accretive to cash EPS.

Commenting on the announcement, Chairman and Chief Executive Officer Stephen Hughes stated, “We are excited to add Udi’s Healthy Foods to our portfolio of health and wellness brands. Udi’s has built a strong brand with a very loyal following in gluten‐free bread, which includes over 1,000,000 ‘Friends of Udi’s’ social marketing followers. Udi’s leading bread and bakery portfolio is the perfect complement to Glutino’s wide range of grocery products. With this transaction, we will offer the most comprehensive portfolio of gluten‐free products to address one of the fastest growing categories in the food industry. This portfolio of gluten‐free brands and products will enable us to offer all retailers in North America a one stop strategic partner to address the growth in gluten‐free.”

Commenting on the transaction, E&A Industries Partner and CEO of Udi’s Healthy Foods Devin Anderson stated, “This is an excellent development for the Udi’s organization, as it represents an outstanding opportunity to bring together two companies which share similar corporate visions, principles and growth objectives committed to meeting consumer needs. We are proud of our grassroots, digital and social media strategies that engaged consumers to help Udi’s grow from $4.3 million in net sales in 2009 to an annualized run‐rate of $72.4 million in net sales, based on first quarter 2012 results. Combining our organizations will allow Udi’s to continue on its significant growth path and leverage Smart Balance’s strategic leadership. We look forward to working together to grow its health and wellness platform and are confident the Udi’s business will thrive under Smart Balance’s direction.”

Furthermore, Mr. Hughes stated, “This acquisition will be transformational to our company, as it will position Smart Balance as a leader in gluten‐free, accelerate our growth rate, and further diversify our mix toward high‐growth natural brands. The gluten‐free category is now a cornerstone strategy within our corporate vision of creating a health and wellness platform that addresses highly‐motivated consumer need states. As our Smart Balance, Earth Balance and Bestlife brands address the health and wellness needs of consumers, Udi’s and Glutino address a specific dietary need by eliminating gluten in foods that certain consumers have to avoid for health reasons.”

“We see future revenue growth opportunities and cost synergies throughout our entire organization as a result of this acquisition. With this acquisition, we believe our sales, marketing and product development capabilities we are leveraging with Glutino will help Udi’s continue on its remarkable growth trajectory. We look forward to partnering with our new colleagues from Udi’s to become the experts in gluten‐free products and create a truly comprehensive gluten‐free solution for retailers and consumers,” Mr. Hughes remarked.

“Regarding Glutino,” Mr. Hughes concluded, “we are beginning to see benefits associated with the consolidation of this acquisition and, while reduction of distributor inventory impacted our sales to customers in the past two quarters, inventory levels are now stable. As expected, Glutino net sales are now tracking retail sales.”


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