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Post scoops up Hearthside's natural cereal

by Richard Collings | Published May 10, 2013 at 9:05 AM

In a bid to improve growth and margins, Post Holdings Inc. announced Thursday, May 9, it scooped up assets of Hearthside Food Solutions LLC in a $158 million deal.

The St. Louis-based cereal maker famous for its Grape-Nuts variety of cereal, has agreed to acquire the branded and private-label cereal, granola and snacks business of Hearthside, a portfolio company of private equity firm Wind Point Partners.

The assets acquired from the PE-owned food company include Golden Temple, Peace Cereal, Sweet Home Farm and Willamette Valley Granola, as well as the private-label granola business.

According to a Wind Point statement, the deal does not include Downers Grove, Ill.-based Hearthside's bars, cookies or crackers business.

The transaction is expected to close in June.

Post will combine the assets with its Attune Foods division. Attune consists of Erewhon, Skinner's and Uncle Sam cereal brands, which are widely sold in natural and health channels such as Whole Foods Market Inc.

Attune, which generated $15 million in revenue in 2011 according to the St. Louis Business Journal, was acquired earlier this year by Post for undisclosed terms.

The acquisition of assets from Hearthside will add another $70 million to Post's revenue and about $17 million to $19 million of Ebitda, which includes anticipated synergies, the company said. Post also said it will receive a cash tax benefit as a result of the deal of between $25 million and $30 million.

Post, which last year spun out of Ralcorp Holdings Inc. -- which itself was acquired in November by ConAgra Foods Inc. for $6.8 billion -- is striving to improve its margins after it was a drag on earnings for both Ralcorp, and its preceding owner, Kraft Foods Group Inc.

A move into the faster-growing, higher-margin natural and organic space, where retailers from Whole Foods to Sprouts Farmers Market LLC, as well as the newly public Fairway Group Holdings Corp., are proliferating, may help.

"This transaction expands Post's participation in the high-growth segments of the cereal category, and we are excited about the expanded footprint it provides us," Post CEO Bill Stiritz said in a statement.

"This acquisition will provide us with expanded presence with new retail partners and will be accretive to both top-line growth and earnings," he added.

Included in the transaction are a 135,000-square-foot manufacturing facility and a 30,000-square-foot warehouse in Eugene, Ore., which will be leased by Post.

In addition to adding a presence in Oregon as a result of the Hearthside deal, Attune will also maintain its offices in Phoenix and San Francisco.

General Mills Inc. has also done deals to beef up its natural food offerings. In June 2008, it bought Denver-based Humm Foods, parent of Larabar, for undisclosed terms. And in 1999, it bought organic and natural foods company Small Planet Foods Inc., the parent of Cascadian Farm organic cereal.

Chicago-based Wind Point acquired Hearthside in partnership with Rich Scalise in 2009 for undisclosed terms. At the time of the buyout, Hearthside generated $225 million in annual revenue, The Daily Deal reported.

Scalise, formerly president of Ralcorp's frozen bakery products business, became CEO of Hearthside upon completion of the deal.

In May 2010, Hearthside bought Consolidated Biscuit Co., a maker of cookies, crackers, toaster pastries and fruit and cereal bars, as well as the cereal division of Golden Temple. The combination of the businesses was expected to generate $700 million in annual revenue, the company said at that time. Hearthside followed up with another deal in 2011, adding Roskam Granola from Roskam Baking Co. for undisclosed terms.

In June, Hearthside raised $400 million in debt to refinance a $280 million term loan. Part of that refinancing went to pay a dividend of an undetermined amount to Wind Point.

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