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General Mills Takes a Bite of Pet Food

$8B deal for Blue Buffalo, fast growing brand in booming ‘wholesome natural’ category

Noting that demand for natural and premium foods is every bit as strong in the pet aisle as the cereal aisle, General Mills on Friday announced an $8 billion deal to acquire Blue Buffalo Pet Products.

Blue Buffalo, based in Wilton, Conn., is the fastest-growing major pet food company making natural foods and treats for dogs and cats, with 2017 sales of nearly $1.3 billion. Over the past three years, Blue Buffalo has delivered compound annual net sales growth of 12% and adjusted EBITDA growth of 18%. 

The deal is expected to close by the end of General Mills’ fiscal year in May and has been approved by the boards of both companies. It will add pet food to General Mills’ categories, and another name to a collection of natural/organic and premium brands acquired by the Minneapolis CPG giant as it has reshaped its portfolio in recent years.

“In pet food, as in human food, consumers are seeking more natural and premium products, and we have tremendous respect for how attentive Blue Buffalo has been to the needs of their consumers, pet parents and pets as they have built their brand,” Jeff Harmening, General Mills chairman and CEO, said in a release. “As we have done with Annie's, Larabar and Epic, we expect to help Blue Buffalo by leveraging our extensive supply chain, R&D, and sales and marketing resources. We will in turn benefit from their experience building one of the strongest pull brands in the CPG world."

Founded in 2002, Blue Buffalo makes natural foods and treats for dogs and cats under the Blue brand, which includes Blue Life Protection Formula, Blue Wilderness, Blue Basics, Blue Freedom and Blue Natural Veterinary Diet. The $30 billion U.S. pet food market is generating consistent 3% to 4% growth and is highly attractive for retailers based on continued market growth, premiumization and subscription-like purchase patterns that drive traffic and repeat purchases, the companies said.

The wholesome, natural pet food market represents approximately 10% of the pet food market in volume and approximately 20% in value, the companies said.

 “I have been impressed by General Mills' strong track record of accelerating growth for its natural and organic brands, while giving them the freedom to maintain their own unique culture and identity," said Billy Bishop, Blue Buffalo CEO. "General Mills will be a tremendous home for our Blue brand as our talented team of over 1,700 'Buffs' joins this new extended family. From the first meeting Jeff and I had, I felt a strong cultural fit between our two companies and believe they will be a great partner in our mission to reach more pet parents and feed more pets.”

Blue Buffalo is also No. 1 in the rapidly growing pet e-commerce channel, with more than $250 million in sales in 2017—a 75% growth clip over the past year. 

General Mills said it could bring improved distribution and scale to the brand while realizing up to $50 million in cost saving through synergies.

The all-cash purchase price of $40 per share represents a 23% premium to Blue Buffalo's 60-day volume weighted average price, and a 2017 adjusted EBITDA multiple of approximately 22 times, including synergies. General Mills said it expected to finance the transaction with a combination of debt, cash on hand and approximately $1 billion in equity.

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