Although executives at Pinnacle Foods had a lot of questions — and some skepticisms — about gluten-free, in the end they felt the valuation of Boulder Brands fell nicely into its target zone.
On Nov. 24, Pinnacle Foods entered into an agreement to acquire Boulder Brands for approximately $975 million. Boulder Brands manufactures gluten-free and frozen food products as well as a line of shelf-stable spreads under the Udi’s, Glutino, Evol and Smart Balance brands.
In a Nov. 24 conference call with analysts to discuss the acquisition, Bob Gamgort, chief executive officer of Pinnacle, said Boulder had been on Pinnacle’s radar for quite some time. Until recently, the Boulder, Colo.-based company’s valuation was too high, though, and Mr. Gamgort said executives at Pinnacle were focused on conducting due diligence on the gluten-free category. In the end, Pinnacle decided that Boulder’s portfolio of brands, about half of which are gluten-free, was worth making a play for.
“What makes these brands unique is that they are the leader in gluten-free products,” Mr. Gamgort said. “There are a lot of businesses that have gluten-free varieties of traditional brands, but these are two dedicated gluten-free brands, and that is very unique. A couple things that we found along the way: Is gluten-free a sustainable trend or is it a fad?”
One of the positives Pinnacle found was a strong growth rate for the gluten-free category. Mr. Gamgort cited data showing 100% to 150% growth over the past couple years, to approximately $11 billion in sales. He said about 6.5% of all foods sold are labeled gluten-free.
“We were very conservative in modeling a much reduced rate of growth going forward than what the experts outside would predict,” he said. “But make no mistake, this is not a fad. This is a sustainable trend that is driven by a real consumer need. What we found really interesting when we dug into this is that the consumers who are looking for gluten-free products trust dedicated gluten-free brands more than they do a variant of an existing brand because they are afraid that there might be some cross-contamination. And obviously there been some examples recently of cross-contamination, which continues to fuel the beliefs that if you are gluten sensitive you need to look for a gluten-free brand.
“So I would tell you that when we first put this business on our radar screen, and again, it was part of the process, we had a lot of questions and quite frankly some skepticisms about gluten-free and have spent a lot of time researching this and thinking it through and obviously, based on the transaction we’re talking about today, are firmly convinced that it is a sustained trend and I think we have been conservative in modeling the go-forward growth rate on that.”