Mondelēz is buying Clif Bar & Company for US$2.9 billion

Posted on by bsmac

INTRODUCTION

On June 20th, 2022, Mondelez International Inc said it will buy US energy bar maker Clif Bar & Company for US$2.9 billion (RM12.7 billion) to expand its global snack bar business. Cadbury and Oreo owner Mondelez said it will get the Clif, Luna and Clif Kid brands of bars in its portfolio through the acquisition. The deal will see it become a $1bn global snack bar player and continues its expansion in baked snacks.

Sally Grimes, CEO of  Clif Bar & Company, said:

“Mondelez International is the right partner at the right time to support Clif in our next chapter of growth…Our purposes and cultures are aligned and being part of a global snacking company with broad product offerings can help us accelerate our growth.”

COMPANY Overviews

Clif Bar

Back in 1990, in the middle of the 175 miles bike ride, Clif Bar was born. Gary Erickson was halfway through the ride when he had his “epiphany”. Exhausted and hungry, Gary had the idea to create good-tasting and nutritious energy bars. The following day he called his mum, the best baker he knew, and for the following six months they experimented with ingredients and recipes. Finally, they came up with their first bar, named Clif Bar in honor of Gary’s father Clifford. In February 1992 Clif Bar was launched and the first year, they did $700k in sales. Popularity grew to include outdoor adventurers of all types, and distribution expanded to include grocery stores, convenience stores and other retail outlets nationwide. In the next eight years, Clif Bar went from $700k in sales to $39ml, without any debt and any investors.

Yet, when you grow a company that fast, it doesn’t come without issues. There were growing tensions between Gary and his partner Jay. In the early 2000s, Clif Bar’s main competitor Powerbar was acquired by Nestlé and, another competitor Balance Bar was sold to Kraft. Clif Bar owners were pressured to sell the company. After seven months of negotiations, Gary and his wife Kit Crawford bravely decided to stay private, turning down a $120ml offer from Quaker Oats. As they developed an innovative business model focused on sustainability, the company experienced a double-digit compounded annual growth for many years, becoming the #1 nutrition bar company in the US.

However, the snack-bar maker has had a CAGR of just 1% over the past three years. As the company crossed the $1bn in sales threshold in 2017, momentum began to slow. In 2018 the owners Erickson and Crawford returned to the helm of Clif Bar and the CEO Kevin Cleary left the company. According to former employees, Erickson began to clash with the existing management over how certain parts of the business were being run. Moreover, the coronavirus pandemic caused a shift in snacking habits that stunted some of the key purchasing channels for energy bar makers. Because of the mobility restrictions, sales through more impulse-type channels as fitness facilities and convenience stores, slowed. In 2021, the company announced for the first time a massive 125 people lay off. The news shocked employees who felt betrayed by the company that for many years received recognition for its workplace culture.

Finally, Clif Bar’s mission-driven culture is one of its key appeals; the company uses mostly organic ingredients and has focused on investing and in promoting sustainability. After the announcement of the acquisition by Mondelez, the question is whether Clif Bar will maintain those values.

Mondelez

Even though Mondelez is a young American multinational founded in 2012, it was built on the foundation of several predecessor companies, most of which date back over 100 years. In 1903, James L. Kraft started a door-to-door cheese business in Chicago and in 1924 the Kraft Cheese Company was listed on the Chicago Stock Exchange and the New York Stock Exchange listing followed two years later. The company started a consolidation phase acquiring competitors till getting acquired itself by the National Dairy Company, which was renamed after some years in Kraft Foods. In 1988, Philipp Morris acquired the company and in 2001 it listed Kraft Foods retaining an 88% stake in the company. Some years later, Kraft Foods became independent and in 2012, it decided to split up into two new entities. This is when Mondelez was born, focusing on the global snacks and confectionery business. The other entity retained the Kraft name and focused on the North American grocery-foods business.

Mondelez has since then grown focusing on four segments: Biscuits, Chocolate, Candy and Gum. With a CAGR of 5.2% over the last three years, Mondelez retains 17% of the Biscuits global market share and its most famous biscuit brand Oreo is the #1 cookie in the world. Furthermore, Mondelez owns several major brands including Philadelphia, Ritz, Tuc, Cadbury, Milka and Toblerone. Thanks to the strong positioning of its brands the company controls respectively the 22%, 12% and 5% of the Gum, Chocolate and Candy global market share.

To additionally fuel the growth, the deal-hungry Mondelez has been very active in M&A, completing nine acquisitions in the last four years. With the ambition to lead the future of snacking by winning in Chocolate, Biscuits and Baked Snacks, the company has agreed to pay $2.9bn for Clif Bar. Analysts believe that the company’s appetite has yet to be sated, anticipating that Mondelez will remain a consolidator with a hunger to expand in untapped categories and geographies. 

INDUSTRY OVERVIEW

  • The food and beverages market consists of sales of beverages, food, pet food, and tobacco products. The companies in the F&B industry process raw materials into food, pet food, and tobacco products, package and distribute them through various distribution channels to both individual customers and commercial establishments.
  • Major players in the food and beverages market include Nestle S.A., JBS S.A., PepsiCo Inc., Anheuser-Busch InBev sa/nv, Tyson Foods Inc, Wilmar International Ltd, Archer-Daniels-Midland Company (ADM), The Coca-Cola Company, Imperial brands plc, Mars Incorporated.

The global food and beverages market grew from $5,818.25 billion in 2021 to $6,327.35 billion in 2022 at a compound annual growth rate (CAGR) of 8.7%, and it is expected to reach $4,749.28 billion in 2026 at a CAGR of 6.8%.

  • It should be noted that the food and beverages market is among the ones that have been directly and heavily affected by the Russia-Ukraine war. In fact, it has triggered energy and food supply challenges, exacerbating existing food systems vulnerabilities, already weakened under the effect of climate change and the COVID 19 pandemic. The conflict raised widespread international concern of a global food crisis similar to, or worse than, the one the world faced in 2007-2008. 
  • Russia and Ukraine are indeed key agricultural players that, combined, export nearly 12 % of the food calories traded globally, and are major providers of basic agro-commodities, including wheat, maize and sunflower oil. Russia is also the world’s largest exporter of fertilizers. The supply shock provoked by the blockade of Ukrainian exports, coupled with record price levels for energy and basic commodities, led several nations to adopt export restrictions, fueling market shocks and speculative operations, leading to unpredictability in global food supply.

In recent years, there has been a rising in customers’ demand for healthy snacking, in particular, due to increasing population penetration attracted to healthier lifestyles and growing communities attending gyms. Protein snacks in particular the ones offering important benefits, such as reducing blood sugar spikes and supporting muscles’ development. In addition, they aid weight management, as they have minimal levels of carbohydrates and fats, and can be used as a protein source in vegetarian or vegan diets.

This shift in consumer preferences is causing the exponential growth of the market for protein snacks. The global market size was $3.83 billion in 2021 and is expected to register a revenue CAGR of 10.1% by 2030.  Nonetheless, the issues brought up by the Covid crisis and worsened by the Ukrainian war may affect such statistic.

  • Regarding geographical insights, North America accounts for the last revenue share in the protein snacks market and is the primary contributor of the stable market revenue growth. Moreover, the Asia Pacific segment is the one expected to register the fastest revenue CAGR between 2019 and 2030 due to the increasing preference for healthy snacking, driven by western influences. Lastly, this market in Europe is expected to grow at a moderate rate, owing to the potential great contribution of the working classes, especially in Germany and UK and to the increasing popularity of vegan diets, which increase the demand for plant-based protein snacks.
  • It is a moderately consolidated market, with many companies occupying a significant market share and the rest by a large group of companies.  Some major companies are: Del Monte Foods, Inc; B&G Foods, Inc; PepsiCo; Hormel Foods Corporation; Unilever; Kellogg Co.; Nestlè; Danone; Monsoon Harvest; Tyson Foods, Inc; Clif Bar & Company.
  • Companies operating in this market are focused on the adoption of strategic developments with marketing companies and social media influencers, to create a reliable and popular brand image, connected with the ideas of having healthier lifestyle and being more fit. This theme is also allowing for an increased focus on sustainability (both actual and perceived), leading to increasing research on eco-friendly packaging. 

DEAL ANALYSIS

RATIONALE

Mondelez’s chairman and CEO, Dirk Van de Put, put the company’s acquisition rationale for Clif Bar best when saying “We’re excited about the opportunity to advance our shared passion for delivering great-tasting snacks that help fuel busy lifestyle, while helping to reduce our impact on the planet”. In other words, Mondelez’s snack bar business is on rapid expansion and will now account for up to $1.3bn in yearly revenues compared to the $300m before the acquisition of Clif Bar. Clif Bar has established itself as a strong brand over different age groups with its natural ingredients and an actively lived sustainability approach with regard to products and company culture. A positioning from which Mondelez will benefit.

What’s in it for Mondelez? 

According to Keith Nunes, a journalist with Food Business News, the acquisition fulfills several needs of Mondelez’s strategy and offers a great opportunity for value creation. He points out 2 specific points on why this acquisition makes sense for Mondelez:

  • Snack focus of Clif Bar
  • Synergies and value creation

Regarding snack focus, Mondelez had been in a relatively weak position in the market of snack bars before the announcement with approximately $300m in sales per year in a market amounting to $16bn worldwide. Such opportunity thus gives Mondelez a significant share in a market it had not penetrated properly before and opens up significant potential for further capture of market share. 

The acquisition of Clif Bar offers clear synergy and value creation opportunities for Mondelez. According to Van de Put, specific points of synergy realization will include optimized overheads and an implementation of a revenue growth strategy. Mondelez sees substantial opportunities to increase household penetration and alternative and e-commerce channels for Clif Bar and its snack bar business in general. In addition, a focus on international growth and enhanced in-store excellence will be set and should lead to value creation for Mondelez’s aspiring business division. 

What’s in for Clif Bar?

The global snack bar protein market is projected to grow heavily over the next few years after a disastrous sales growth over the COVID-19 period. During these rough times Clif Bar has fought for growth in a highly competitive market while being hit by supply chain issues simultaneously which resulted in a drop in growth of bar sales and ultimately decreased profits. As a result of this declined profitability and the relatively high purchase price of the deal, analysts have questioned the growth potential of Clif Bar and the underlying ROI for Mondelez. 

All of this speaks for an uncertain and challenging future for Clif Bar in an increasingly competitive environment. Therefore, selling the company at such stage for a valuation, which according to analysts’ opinions lies on the higher end of the bandwidth, makes good sense for the owner of the company. The owners of Clif Bar have thus negotiated a highly attractive price for them with a challenging future ahead. In addition to the high consideration, Mondelez offers the owners of the snack bar company hefty earnout options, which could significantly boost the acquisition price given the performance of Clif Bar’s business over the next few years. 

DEAL STRUCTURE

  • Mondelez International, Inc has acquired Emeryville, Calif.-based Clif Bar & CO at the price of $2.9 billion. Before the acquisition, Mondelez’s snack bar business generated roughly $300 million in sales, and taking into account the Clif Bar the company’s bar will exceed $1 billion in revenues. One of the objectives was to improve the quality and taste of the snack to increase energy and also reduce the impact on the planet.
  • Mondelez declared that Cliff Bar & Co will be operated from its headquarters in Emeryville and that the acquisition also contains the Cliff, Luna, and Clif Kid brands. The Cadbury maker will also pay additional amounts to the sellers depending upon its earnings from Clif Bar.
  • The food giant expects the transaction to be accretive and also create cost synergies for Clif’s distribution network due to its global scale.

It is quite noticeable that Mondelez has been quite active in acquiring growing snacking segments including Ricolino and Chipita. However, the snack-bar maker has had a CAGR of just 1% over the past three years. As the company crossed the $1bn in sales threshold in 2017, momentum began to slow. In 2018 the owners Erickson and Crawford returned to the helm of Clif Bar and the CEO Kevin Cleary left the company. According to former employees, Erickson began to clash with the existing management over how certain parts of the business were being run. Moreover, the coronavirus pandemic caused a shift in snacking habits that stunted some of the key purchasing channels for energy bar makers. Because of the mobility restrictions, sales through more impulse-type channels as fitness facilities and convenience stores, slowed. In 2021, the company announced for the first time a massive 125 people lay off. The news shocked employees who felt betrayed by the company that for many years received recognition for its workplace culture.

SOURCES

The Sun, Business Times, GlobalData, Mondelez International, CNBC, Food Business News,

TEAM

Ghali Taoussi, Gherardo Peruzzi, Letizia Laudicina, Jacob Wirth, Dardi Sulaj