Selva Perspective: Mars / Kellanova
The below is taken from Selva Ventures’ Q2 2024 Quarterly Investor Letter
On August 14, Mars, a family-owned, global leader in pet care, snacking and food, and Kellanova (NYSE: K), a leading company in global snacking, international cereal and noodles, North American plant-based foods and frozen breakfast foods, announced that they have entered into a definitive agreement under which Mars has agreed to acquire Kellanova for $83.50 per share in cash, for a total consideration of $35.9 billion.
This quarter, we are sharing our thoughts on how this will impact the CPG landscape and emerging brands.
Resources
Mars touted the strategic expansion into snacking in the transaction press release, referencing Kellanova’s strong brand portfolio.
Forbes contributor and former Whole Foods Market Head of Grocery Errol Schweizer weighs in on the transaction, rationale and why this deal may have more downside for consumers than Mars’ potential pricing power.
Selva Perspective
Madeline Kaplan: Mars’ acquisition of Kellanova marks the largest CPG acquisition we’ve seen in years and will have many implications for the industry and the emerging brands we partner with. Assuming that the deal is not blocked by anti-trust (which is still a risk to consider), this acquisition will make Mars one of the biggest players in the space and shows a trend towards big CPG consolidation.
Consolidation may make it harder for emerging brands to compete on price and distribution, but also encourages more innovation on product and marketing. While this acquisition will unlock synergies and distribution, innovation will be deprioritized which gives emerging brands an opening to fill key gaps in consumer demand. For example, across both brand portfolios, there are not many high protein offerings that tap into the massive emerging trend of increased demand for high protein foods from more people focused on longevity and the rising number of people using GLP-1s drugs. The bar for emerging brands is higher, but those that can endure will have a stronger business and solve bigger problems for consumers at the end of the day.
The acquisition also shows Mars moving away from its core candy business into a more diversified portfolio that brings better for you brands like RxBar and Kashi into the fold. The combined portfolios of Mars and Kellanova will provide broader selection of options for consumers on a global scale. While Kellanova still has plenty of high-sugar, ultra-processed products in its portfolio (Pop-tarts, Rice Krispies, Pringles), my hope is that we see the ‘better for you’ brands in the portfolio reach new markets and allow more consumers access to healthier options.
Kiva Dickinson: It is fascinating to see such a large transaction announced on the tail of a quieter stretch of consumer M&A over the past three years. If this deal closes it will be the third largest CPG acquisition of all time (after SABMiller/ABI and Kraft/Heinz), but that is a big if. The Biden administration’s FTC has been a challenging gatekeeper of M&A, while Trump’s FTC blocked Edgewell/Harry’s and P&G/Billie. Put simply, it is just far easier for regulators to build a case of consumer harm when we are considering consolidation of consumer products.
It is interesting to consider why Mars might have done this, beyond the obvious accumulation of scale economies and supplier power. Could they be reacting to cocoa prices more than tripling year to date? The acquisition of a salty / savory snack portfolio serves as a nice hedge against Mars’ heavy chocolate / confectionary business. Could they be scared of GLP-1s eroding the market for candy? Shifting the business from indulgence towards healthier alternatives could protect the business from a heavy long-term headwind.
Large CPG is certainly in an interesting position: their stocks trade as recession-resistant growers. They need to grow but they only have so many levers. Raising prices has run its course for the past two years and innovation has been hard to come by. This leaves acquisitions and divestitures as the only options. As rates come down and capital markets open up, we expect both to pick up in the coming years. Perhaps Kellanova is the first major domino.
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