In past articles I have discussed the fact that equity firms look for “synergistic” fits to add on to their platform companies. As you’ll recall, a platform company is defined as an original investment by an equity firm in an industry niche. The strategic goal is to “add on” to this platform by acquiring smaller companies in the same or complimentary niches that have synergies in common with the platform company.
The same is true for acquisitive corporate buyers. “Strategics,” as they are called (industry lingo for strategic buyers), are public and private firms that are actively looking for companies that are complimentary to their own line of business. A recently announced acquisition is a perfect example of this.
A couple weeks ago, Ares Capital announced that it had sold its portfolio company, Border Foods Inc. to Mizkan Americas Inc. a subsidiary of Japan-based Mizkan Group. Being as inquisitive as I am, I immediately wondered about the motivation behind this deal. Although the details of the transaction were not announced, we can glean quite a bit of the “why” behind this deal from the press release and the companies’ websites.
Over the years, Mizkan has made a number of strategic (read synergistic)of other leaders in the food processing industry in order to diversify its across its channels and ultimately strengthen its business. According to the press release, “Border Foods leadership in the growing market for Hispanic foods offers Mizkan new opportunities to expand the global presence of its retail, branded, food ingredients and foodservice business.”
It turns out that Border Foods is the nation’s oldest and most established processor of green chile, jalapeño and tomatillo peppers, and enchilada sauces for the ingredient, private label, co-pack, and foodservice end markets. Located in Deming, New Mexico, Border Foods began operations in 1972 and is the largest processor of quality chile peppers in the United States.
Conversely, Mizkan Americas is a leading manufacturer of condiments in the United States with 14 manufacturing plants that serve the retail, foodservice, specialty Asian, and food ingredient trade channels. Since 2005, Mizkan Americas has experienced dramatic growth because of a number of acquisitions. Some of these acquisitions include:
- Holland House cooking wines
- The Specialty Foods Division of Imperial Brands
- World Harbors Marinades & Sauces
Mizkan Americas is also a leading producer of a wide variety of vinegars, mustards, cooking wines, wine reductions, sushi seasonings, jellies, salad dressings, Asian sauces, and other liquid condiments. Mizkan other brands include NAKANO, Four Monks, Barengo, and Mitsukan.
“The acquisition of Border Foods by Mizkan Americas is a great fit for both companies. Each company focuses on the market leadership strategy of operational excellence. This strategy has delivered ongoing value to both companies’ customers.” said Mark Majewski, Mizkan Americas CFO.
This acquisition is clearly a win-win scenario for both parties. Mizkan gains access to a completely new market. Executives with Mizkan know that the Hispanic food market has been growing dramatically over the past several years and is projected to reach $8 billion dollars this year.
In addition, Border Foods gains access to a huge global marketing-distribution machine, which will allow Border Foods to expand dramatically. And, both companies will have an opportunity to benefit from experienced management and a solid employee base, often two things that are valued more than anything else in a transaction. All in all, a real win-win for both companies.
You can expect to see more deals like this closing this year by acquisitive corporate buyers. According to Brian McDonah, co-head of M&A at Robert W. Baird, who was speaking at a recent Association for Corporate Growth meeting in San Diego, “Every factor is in place for strategics to maintain a dominant presence in the deal-making market for the foreseeable future.”
As seen with the Mizkan-Border Foods deal, it is clear that strategic buyers are out there right now looking for great companies with synergistic fits. If you own a premium corporate buyers who are flush with cash., it is vital that you re-examine your plans soon. The next couple of years will be prime years to find
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