Atlas is a $3bn private equity firm that focuses on building ‘performance organizations' in packaging, construction, supply chain management and power generation. Acquiring TreeHouse will bring food manufacturing into that realm.
TreeHouse originally put its snacks division up for sale last year to trim its portfolio and boost margins.
The company plans to use the proceeds of the sale – expected to close in the third quarter of this year – to pay down debt. According to its annual earnings releases, its long-term debt amounted to $2.3bn at the end of the last financial year on December 31, 2018.
New era for private label
The sale of its Snacks Division will also culminate a recent series of divestitures under new president/CEO Steve Oakland's charge to simplify and streamline the company.
At the Consumer Analyst Group of New York’s (CAGNY) annual conference in February, Oakland confirmed the company was ‘reducing inventory by $138m.’ He added TreeHouse had already shed 27% of its SKUs.
In 2018, it sold the McCann’s Irish Oatmeal brand to B&G Food for $32m, and earlier this year, offloaded its ready-to-eat (RTE) cereal business to Post Holdings for an undisclosed amount.
“The sale of the Snacks Division is a key step in optimizing TreeHouse's overall product portfolio,” said Oakland.
Additional capital would ‘fund restructuring efforts,’ which involved closing plants and distribution centers, as well as the introduction of new SKUs in categories like frozen waffles, soups and beverages later this year.
Retailers use private label to ‘differentiate themselves and engage customers’ through exclusive flavors or items, according to Oakland.
"Price is important… but we have to innovate on how we bring [consumers] value, or innovate on what brings them experience," he said.
Optimizing overall product portfolio
TreeHouse produces snacks, baked goods, meal solutions and beverages for major US retailers, including Wal-Mart, Kroger, Aldi and Ahold Delhaize. About 25 customers account for 95% of its total revenue, according to CFO Matthew J. Foulston.
“This transaction allows the Snacks Division to unlock its potential and serve its customers even better under Atlas’ ownership," said Oakland.
The division - which currently employs more than 800 people - is projected to generate net sales of around $690m in 2019.
Three of its plants – in North Carolina Texas and Alabama – are included in the transaction, while a fourth – in Minnesota – is scheduled to close by the end of the third quarter as announced in May.
Unique growth potential
“This Snacks business will be a welcome addition to the Atlas family of manufacturing and distribution companies,” said Michael Sher, a partner of Atlas Holdings.
The Connecticut-based conglomerate operates 19 manufacturing and distribution businesses, which collectively employ more than 17,000 people at over 150 facilities worldwide.
"Customers are consistently choosing private label brands, and this business is a premier manufacturer with unique growth potential. We’re excited to partner with this team to deliver the finest healthy, private label snacks in the industry.”
The transaction is subject to customary closing conditions and TreeHouse said it would update its full-year guidance to reflect it in its second quarter results.
For 2019, TreeHouse forecasts $5.35bn-$5.75bn in net sales, EBIT at $290-$325m and adjusted earnings per share of $2.35-$2.75 on a diluted basis.