Amplify Snack Brands, the US snack maker, this week announced its latest acquisition, striking a deal to buy private-equity-owned UK crisp firm Tyrrells, itself a business growing in part due to M&A. John Shepherd weighs up what could lay ahead for both companies.
Momentum is the watchword for the acquisitive US popcorn and chips manufacturer Amplify Snack Brands and was further demonstrated this week when the company announced is to acquire UK crisp maker Tyrrells.
Amplify, which was floated less than a year ago, presented Tyrrells as its latest scalp against a backdrop of second-quarter rising sales and profits on 8 August. Amplify posted net income of US$17.2m for the six months to the end of June, more than double the $8.5m generated in the first half of 2015.
And as Amplify’s president and CEO Tom Ennis indicated to analysts, the company, which owns brands including SkinnyPop popcorn and Paqui tortilla chips, continues to have an appetite for organic and inorganic expansion – such as that of the Boundless Nutrition brand back in May, that saw Oatmega bars and Perfect Cookie products join Amplify’s corporate larder.
Amplify hinted at international aspirations just over a year ago, before its flotation in November, and Ennis revealed Tyrrells has long been “at the very top of our strategic target wishlist”.
On completion of the deal, Amplify said its North American footprint will represent about 63% of net sales, with around 23% of net sales now in the UK, and around 14% outside those two markets, based on pro-forma net sales for the last 12 months ended 30 June for both companies.
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“As Tyrrells was not previously for sale, our continued indications of interest and ongoing casual dialogue with their management team finally paid off several weeks ago, and we began to formally pursue this proprietary acquisition,” Ennis said.
Tyrrells is “one of the few large, profitable, rapidly-growing companies that also provided us with an international platform, tremendous revenue synergy potential and immediate diversification benefits”, Ennis said. “We plan to leverage Amplify’s and Tyrrells market-leading brands and talented management team to significantly broaden our international customer reach, meaningfully diversify our brand, product, category, geographic and retail presence, and realise the benefits of operating scale and potential revenue synergies.”
A key attraction is Tyrrells is a “leading player in France with existing and growing penetration in other key western European markets”, Ennis said. “Tyrrells has a strong presence across the potato chip, vegetable chip, corn chip, and popcorn product categories and is supported by five international manufacturing facilities in England, Germany and Australia.”
Tyrrells derives an excess of 40% of its earnings outside of the UK, as well as manufacturing abroad, which Ennis said is “a natural hedge against potential foreign exchange concerns”.
David Milner, the Tyrrells CEO – and soon-to-be head of Amplify’s international business – sought to emphasise how the UK group had become a more international business in recent years. “France is our first market, where we have over 50% of the hand-cooked market today, we’re pretty much in every supermarket; then Germany, and Switzerland, and the list goes on. Just looking at Tyrrells alone, in sales this year we will be delivering just under 45% of our sales from international markets,” Milner said. “That’s a big change for us. Six years ago, we were a UK domestic business and doing very nicely, and now we’ve been able to, on one hand, continue that growth but, on the other hand, step out.”
Nevertheless, the UK remains Tyrrells’ biggest single market. The country’s crisp sector is intensely competitive, with brands often on promotion and the major supermarket chains also stocking a growing range of own-label lines.
Milner acknowledged the UK is still a tough retail environment and “highly competitive”. However, he said: “We do have the advantage of being in the right space, snacking is a great place to be, and premium snack within that is the best place to be.”
Milner added: “Popcorn has really just taken off in the UK and we have a brand, Tyrrells Poshcorn, which is our fastest-growing business. And so I think if you’re in a branded category and you’ve got brands that are the relatively new but seen as very positive in terms of better-for-you snacking, you’ve got great double-digit growth pretty much everywhere you look.”
In a difficult environment, Milner noted, retailers “want to work with brands that can provide them with growth”.
Analysts acknowledge the attraction of Tyrrells to Amplify. Tom Vierhile, innovation insights director at Canadean, told just-food: “You can see the appeal of Tyrrells from Amplify’s perspective. You’ve got a brand growing at a compound annual growth rate of better than 20% in recent years and you also have a brand that claims to hold the number two spot for ‘hand-cooked premium chips’ in the UK and a leading position in France. There is a real opportunity to leverage these strengths to the US and other world markets since many of the strengths of the Tyrrells brand resonate with consumers globally.”
Vierhile said: “According to a 2015 global consumer survey by Canadean, 61% of consumers say they find food products that remind them of their childhood and simpler times to be ‘appealing’. And 56% say they find food products where the sourcing of ingredients is clearly stated to be ‘appealing’. These are key areas that Tyrrells taps with its emphasis on small-batch production, local sourcing of ingredients, and authenticity.”
The UK group has enjoyed a sustained period of growth in recent years and has, in recent months, sought to bolster its business with two international acquisitions, one in Australia and one in Germany.
However, Amplify’s takeover could give Tyrrells a welcome lift for the company in a market where Milner recently indicated it wanted to improve – the US. Milner told just-food in May that, although the Tyrrells brand was present in the US, the company would need to acquire a business there to make a step-change to its fortunes in the country. “We try hard there and we do have success but you can’t be a part-time competitor in North America,” Milner said.
Nevertheless, Vierhile puts forward data on the US potato chip market that suggests the market could continue to be a challenge for the Tyrrells brand, even under Amplify’s ownership. “Tyrrells is best known for its potato chips, and the potato chip market does not have the same growth dynamics as the popcorn market that Amplify is much more familiar with by virtue of its SkinnyPop brand. In the US, Canadean projects that the potato chip market will grow at an anaemic 0.8% compound annual growth rate from 2014 to 2019, much worse than the popcorn market’s expected CAGR of 5.9%.”
Vierhile said added to the challenge for Amplify is the fact that the potato chip market “is much more top-heavy than the popcorn market”. “In the US, PepsiCo accounts for roughly two-thirds of the overall market with its various brands, which is nearly twice the share for the most dominant player in the popcorn market.”
Amplify will also need to address the fact consumers of potato chips “are somewhat less likely to experiment with buying new products than consumers of other types of food products”, Vierhile said. “A 2014 Canadean survey found that just 15% of US consumers say they often experiment with buying new products for potato chips, significantly less than the 24% that say the same for desserts and 22% for chewing gum. Potato chips ranked near the bottom for novelty-seeking behaviour of the more than 30 food categories surveyed by Canadean. Brand preferences in potato chips seem to have deeper roots than in other food categories, and this is something that Amplify will have to contend with going forward.”