Food giants expected to raid Pirate's Booty auction

VMG Partners has put portfolio company Robert's American Gourmet Food LLC, seller of the Pirate's Booty brand of all-natural baked snacks, up for sale, according to sources.

A source said VMG has hired Credit Suisse Group to handle the auction. The target has revenue north of $100 million, a source said, and is very profitable.

VMG and Robert's American, which does business as Pirate Brands, declined to comment for this article.

Potential acquirers of Pirate Brands include General Mills Inc., Kellogg Co., Snyder's-Lance Inc. and Hain Celestial Group Inc., sources said.

PepsiCo Inc.'s Frito-Lay Inc. could also potentially be a buyer, depending on how the all-natural baked market is defined by regulators. Sources agree that Frito-Lay would be a potential buyer, but differ on how much regulatory scrutiny such a deal would face. One source said Frito-Lay, the market leader in chips, would likely not be allowed by regulators to acquire snack companies that rely on potatoes, or perhaps even corn, as a primary ingredient. Another source said an acquisition of Pirate's Booty might not be large enough to concern antitrust regulators.

VMG in September 2012 sold pretzel maker Snack Factory LLC to Snyder's-Lance Inc. for $340 million in cash, equating to a multiple of 10 times Ebitda and 2 times sales. VMG would likely sell Pirate Brands for a similar multiple, though a source with knowledge of the company declined to comment on Pirate Brands' Ebitda.

General Mills has also shown interest in the snacking category with its purchase of Food Should Taste Good Inc., a Needham Heights, Mass.-based snack foods company, for undisclosed terms in a deal announced Feb. 29, 2012. It added Denver-based Humm Foods, parent of Larabar, on June 10, 2008, for undisclosed terms. And in December 1999, General Mills bought organic and natural foods company Small Planet Foods Inc., the parent of Cascadian Farm organic cereal and Muir Glen organic pasta sauce.

Cereal giant Kellogg acquired the Pringles chip business from Procter & Gamble Co. for $2.7 billion in cash in a deal announced Feb. 15, 2012. Kellogg won the snack food unit after an attempt to merge the unit with Diamond Foods Inc. in a $2.3 billion stock-and-debt transaction fell apart due to accounting errors committed by the would-be buyer.

Pirate Brands was founded in 1987 by Robert Ehrlich, who saw a void in the marketplace for healthy snack foods for children. VMG acquired a majority stake in Robert's American Gourmet Food in November 2008 for undisclosed terms.

Fans of Pirate's Booty are affectionately known as Bootyheads. In addition to making Pirate's Booty, Pirate Brands also makes Smart Puffs, Potato Flyers and Original Tings.