By Paul Ziobro
Kraft Foods Inc. (KFT), while preparing for its own split later
this year, agreed to sell a majority stake in its Back to Nature
line of natural-food products to a private-equity firm that focuses
on acquiring smaller, overlooked brands from large
corporations.
Financial terms weren't disclosed on the deal--expected to close
in October--but the purchaser, Brynwood Partners, typically does
deals less than $125 million in size.
Kraft has sold two other brands to Brynwood, but this time the
food giant is keeping a minority stake, said to be between a
quarter and a half. Kraft's insistence on retaining a share in the
maker of crackers, cookies, granola and trail mixes reflects the
potential it sees in the brand, but one that the company felt
couldn't be achieved within its massive corporate structure, where
Kraft steers more money toward its largest, most profitable brands,
like Oreo cookies.
"Back to Nature does not have the kind of scale for us that will
get it the resources that could get it the growth that it should,"
Kraft spokesman Michael Mitchell said. As a result, the brand will
go to Brynwood, whose latest buyout fund has about a tenth of
Kraft's total marketing muscle. Last year, Kraft spent $3.1 billion
on advertising, research and development.
The brand, which Kraft bought in 2003 for an undisclosed amount,
operates in the faster-growing natural-foods space and uses
less-processed ingredients. It will be held through a joint venture
between Brynwood and Kraft. While Kraft will have board
representation in the joint venture, Brynwood will manage everyday
affairs.
Brynwood Senior Managing Partner Henk Hartong III plans to bring
to Back to Nature what it has lacked recently, including more new
products and more focused marketing. He sees the brand having
latitude to expand into new categories, like salty snacks and
frozen foods, and becoming a more formidable challenge to the likes
of Annie's Inc. (BNNY), a maker of organic macaroni-and-cheese and
other snacks who had a highly successful initial public offering
earlier this year.
Back to Nature is "a good solid performing business that we
think can do more," Mr. Hartong said. Annual sales are between $50
million and $75 million, but cookies, crackers and trail mix have
increased sales at roughly 20% a year over the past three years,
Mr. Mitchell said.
Eventually, Kraft's stake will become part of Mondelez
International Inc., the global snacks company that Kraft will be
left with after spinning off its North American grocery business,
Kraft Foods Group, on Oct. 1. Back to Nature also has a macaroni
and cheese product, which will be sold by Kraft Foods Group under a
licensing deal.
Brynwood, over its 28-year history, has become a haven for
carve-outs of small consumer brands, acquiring three dozen brands
from various corporate sellers, including Procter & Gamble Co.
(PG), Unilever N.V. (UN) and PepsiCo Inc. (PEP). Several brands
have thrived outside the shadow of the corporate parent. The Zest
soap brand, which Brynwood acquired from P&G in January 2011,
has increased sales 25% already, Mr. Hartong said.
Brynwood had bought the cookie brand Stella D'Oro and the health
bar Balance Bar from Kraft. Stella D'Oro was a tough investment for
Brynwood, which dealt with a lengthy labor dispute at a Bronx,
N.Y., factory before selling the brand to Snyder-Lance Inc. (LNCE)
in 2009 for $23.9 million. But Brynwood did manage to increase the
company's sales 30% during its ownership.
Balance Bar, acquired in late 2009, has since seen sales return
to single-digit growth, after declining in the years before its
involvement, Mr. Hartong said.
Write to Paul Ziobro at paul.ziobro@dowjones.com
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