General Mills’ (GIS, Financial) shares have soared 7.2% in the last one year and 74.3% in the last five years. The maker of branded food products has been able to make it to the headlines by announcing a yet another acquisition to strengthen its business. It recently announced its plans to acquire Annie’s (BNNY, Financial), a company which provides natural and organic food products. Only two years after its debut, this company was a great strategic fit for the acquirer. Let us understand how.
A perfect fit
Annie’s is indeed a great fit for General Mills mainly because of its specialization in the natural and organic food category. It will add 145 products to General Mills’ list of offerings. Also, Annie’s presence expands over 35,000 locations in the U.S. Thus, it will expand the acquirer’s store network and geographical presence further.
Moreover, Annie’s is a growing company. It went public in April 2012 and its share price has appreciated by 32% since then. Its focus on food made of natural ingredients has been a key to success since people are becoming health conscious and want to have healthy food only.
In fact, its revenue has also been moving north. Revenue in its latest fiscal year jumped 20% to $204 million over the prior year. Thus, General Mills will also add $204 million to its top line through this buyout. It will also strengthen its convenient meals and snacks segment, as declared by the company.
Also, General Mills will be able to offset losses made in the cereal segment. Its dependence on cereal sales has been eating into its results. This resulted in a lackluster performance in the last quarter, wherein the top line fell 3% to $4.28 billion over last year’s quarter.
One of many
However, this is not the first time that General Mills has acquired another company to boost growth. It has been doing so for a long time, with the first one being Small Planet Foods in 1999. Small Planet Foods was into organic canned tomato products and other frozen fruits and vegetables. Further, it acquired LARABAR in 2008, which offers fruit and nut based snacks, and Food Should Taste Good in 2012. These buyouts helped in expanding the natural food segment, enabling it to benefit from the popularity of this category.
Moreover, the snack food retailer also bought Yoplait S.A.S. and Yoki Alimentos in 2012. This was one of the most important buyouts since it enabled the retailer to enjoy the benefits of the growing yogurt business. Its variety of flavors and low calorie Greek yogurts became very popular among customers, resulting in higher sales. Thus, this new acquisition should once again help the company witness growth.
However, General Mills is not the only one to rely on acquisitions for attaining growth. Other players are doing the same. For instance, even J&J Snack Foods has made a number of buyouts to expand its product portfolio.
Final thoughts
General Mills’ dependence on cereals has been quite taxing. Thus, its initiatives to expand its organic food segment are the smartest thing to do. Further, Annie’s addition will be a great advantage as it fits correctly into its business. Also, it has a host of benefits for the acquirer. Thus, investors should be hopeful about this food manufacturer’s future prospects.
