Garden Fresh Gourmet is Campbells latest acquisition

Garden Fresh Gourmet is Campbell's latest acquisition

Campbell Soup Co. has again moved to inject growth into its business through M&A, last week snapping up US salsa-to-houmous maker Garden Fresh Gourmet. And the odds are more deals in categories like fresh food and snacks will follow.

The US food giant already owns the Pace salsa brand but the US$231m deal for Garden Fresh Gourmet is another sign of the company's move to expand into fresh packaged food. In the words of president and CEO Denise Morrison, it is Campbell's latest attempt to "shift our centre of gravity", further building the soup maker's presence in the perimeter of the store.

Almost three years ago, Campbell acquired US chilled foods company Bolthouse Farms for US$1.55bn, its largest acquisition to date.

In between Bolthouse and Garden Fresh Gourmet, US baby food business Plum Organics and Denmark-based baked snacks company Kelsen Group have also been acquired.

However, Campbell's biggest business in sales terms remains US simple meals, which in turn has soup has its biggest component. The division has the highest segment operating earnings. Both sales and operating earnings from the division fell in Campbell's third quarter, the most recent period on which it has published results.

With simple meals and soup continuing to be the biggest part of the business - and with its performance there continuing to be under pressure - it has been clear Campbell needed to continue looking for acquisition opportunities and, after discussions last six months, last Tuesday, Morrison announced a deal for the privately-owned Garden Fresh Gourmet.

"The acquisition of Garden Fresh Gourmet is another milestone in reshaping our portfolio toward faster-growing categories, including packaged fresh and organic foods," Morrison said.

Garden Fresh Gourmet sells the "number one branded refrigerated salsa in the US", Campbell said, citing data from IRI. The company, founded in 1998 and based in Michigan, also manufactures houmous, dips and tortilla chips. In 2014, the group generated $100m in net sales in 2014.

Todd Putman, who joined the group from Bolthouse Farms when that deal went through, has been asked by Campbell to lead the newly-acquired business. Speaking to just-food on Tuesday, Putman said Garden Fresh Gourmet was growing "anywhere between ten and fifteen per cent" year-on-year.

Refrigerated salsa is Garden Fresh Gourmet's flagship product. According to IRI data provided by Campbell, the category was worth US$260m in 52 weeks to 25 January, with sales up 8% on the previous year. The growth of the category, Putman says, comes from the rise of snacking and growing demand for "fresh or healthier foods".

Garden Fresh Gourmet, he points out, has a "got a lead of anywhere between five and eight points, depending on what part of the market you're looking at".

The Garden Fresh Gourmet portfolio also includes houmous, dips and chips, three categories larger than refrigerated salsa but where the business has a more fledgling presence. Nonetheless, Putman believed the distribution networks of Campbell and of Bolthouse Farms can benefit the entire range. "We see lots of opportunity," he said. "This brand is really developing in the middle part of the US. We see a lot of opportunity on both coasts. The Campbell Soup Company, as well as Bolthouse Farms, has got great national relationships with grocery customers, as well as Costco and mass, so just spreading that distribution out across the country evenly would be tremendous upside."

Campbell says the acquisition of Garden Fresh Gourmet will mean its Fresh division - which also includes Campbell refrigerated soups, as well as Bolthouse Farms - generates more than $1bn in annual sales.

Jonathan Feeney, principal at investment research firm Athlos Research, says packaged fresh foods remains a small part of the overall Campbell portfolio - but believes the tide is turning. "Despite its modest presence in packaged fresh - circa 5% share - let alone the company (13% of sales, 6% of profit), Campbell’s centre of gravity is clearly shifting this way," Feeney wrote in a note to clients last week.

On 22 July, Campbell hosts its annual investor day at its HQ in New Jersey. "We expect more focus on fresh at the analyst day in six weeks," Feeney added.

Of course, one can safely assume Morrison and her colleagues will not divulge Campbell's other acquisition targets next month but, the signs are the company, after a relative hiatus, has its sights on more deals. Asked if it should be expected that Campbell will make more acquisitions in the next 12 to 18 months, Putman said: "I think that's safe to assume," before adding: "You'll see a lot of dialogue and quotes coming from Denise Morrison and [president of Campbell Fresh] Jeff Dunn. I wouldn't want to get in front of them."

The nature of the targets is likely to be relatively small. "In our view, any near-term tie-ups would most likely be smaller bolt-on deals," Morningstar analyst Erin Lash says. However, perhaps that is to be expected, given, generally speaking, the types of companies operating - and enjoying growth - in the perimeter of the store.

However, it would be a surprise if Campbell is not running the rule over the possibility of acquisitions not just in packaged fresh but in snacks, too. One of the great mega-trends in the sector, Campbell's global baking and snacking business saw sales - excluding currency - rise 5% in the company's third quarter and 4% for the first nine months of the year. The new biscuits and snacks division is tasked with driving growth in developed and emerging markets. M&A opportunities are likely to be considered.

And more deal-making is necessary. Soup remains in the doldrums and it is hard to see much growth there; indeed, Campbell expects only "moderate top-line growth" from the new division that will house soup - Americas Simple Meals and Beverages.

Competition in faster-growing categories like fresh or snacks will only intensify and valuations could creep up. Feeney remarked the price paid for Garden Fresh Gourmet based on his estimate for the new assets EV/EBITDA ratio "seems to be a bit high", although he noted the confidence from Campbell's management the company's distribution would boost Garden Fresh Gourmet's volumes.

Morrison has appeared to be one of the most forward-thinking of the CEOs presiding over the major US food groups and we should expect more deals in a bid to reshape Campbell for the new trends driving the sector.