August 14, 2024
Mars’ $36bn Acquisition of Kellanova
By Manha Awais
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Overview of the deal
Acquirer: Mars Incorporated
Target: Kellanova (NYSE: K)
Implied Equity Value:
Total Transaction Value: $36bn
Expected Closing Date: First half of 2025
Target Advisor: Citi (financial), Simpson Thacher & Bartlett LLP (legal)
Acquirer Advisor: Goldman Sachs and Lazard (financial), Kirkland & Ellis LLP (legal)
On August 14th, 2024, Mars and Kellanova announced they have entered into a definite agreement under which Mars will acquire Kellanova for a total of $35.9 billion. This all-cash deal is one of the largest in the past few years and includes a 33% premium to Kellanova’s unaffected 52-week high as of August 2, 2024, for a value of $83.50 per share. The valuation of this deal was 16.4x EV/EBITDA, considerably cheaper than the typical 17x-20x observed in precedent transactions in the snacking sector. The deal represents a strategic alignment as Mars seeks to diversify its portfolio to satisfy shifting consumer preferences while simultaneously leveraging Kellanova’s global presence and existing brand equity. The acquisition consolidates Mars’ position as a leader in the food and beverage market and increases competition with other major players like Mondelēz International and Nestlé. This deal follows other recent M&A in the food and beverage sector, namely PepsiCo and Rockstar ($3.85bn), Coca-Cola Company and BODYARMOR ($5.6bn), and Mondelēz International and Clif Bar Company ($2.9bn). Mars’ strategic acquisition signals a growing trend of M&A activity aimed at addressing evolving consumer preferences.
“This is a truly historic combination with a compelling cultural and strategic fit. Kellanova has been on a transformation journey to become the world’s best snacking company, and this opportunity to join Mars enables us to accelerate the realization of our full potential and our vision. The transaction maximizes shareholder value through an all-cash transaction at an attractive purchase price and creates new and exciting opportunities for our employees, customers, and suppliers” – Steve Cahillan (Chairman, President, & CEO of Kellanova)
Company Details (Acquirer – Mars Incorporated)
Mars Incorporated is a completely family-owned global leader in food, snacking, and pet care manufacturing and distributing. The company operates in 80+ countries and has four segments (Mars Wrigley Confectionery, Petcare, Food, and MARS Edge). Mars’ portfolio, of which 38% is Snacking, includes 135+ brands, namely M&Ms, Snickers, Pedigree, Skittles, Ben’s Originals, and Orbit. Mars Edge, the company's life sciences and health division, invests in functional foods and personalized nutrition to address evolving consumer preferences for wellness-driven products. Mars focuses on long-term growth instead of short-term gains, reinvesting in R&D and sustainability projects. By tailoring products to fit local tastes and using advanced tech to boost efficiency, the company stays flexible and competitive in a fast-changing market. Mars has been active in strategic M&A expansion, making 100+ acquisitions since 1992.
Founded in 1911, headquartered in McLean, Virginia
CEO: Poul Weihrauch
Number of employees: 130,000
Total Revenue: 42.838bn
Recent Transactions: Acquisition of Hotel Chocolat ($662mm) and Heska Corp. ($1.3bn)
Company Details (Target – Kellanova)
Kellanova, formerly known as Kellogg Company, is a global snacking company specializing in cereal, noodles, plant-based foods, and frozen breakfast foods. The company operates in 20+ countries using an omnichannel strategy in three segments (global snacks, international cereal, and plant-based foods). Its diverse portfolio includes 25+ brands like Pringles, Cheez-It, Frosted Flakes, and Special K. A significant portion of its revenue is generated from international markets and emerging economies. Kellanova's business model is centered on diversification, innovation, and sustainability. The company invests in R&D to develop healthier options, expand product range, and address evolving consumer trends. By focusing on premiumization and aligning with consumer demand for sustainability, Kellanova incorporates eco-friendly practices into sourcing, production, and packaging.
Founded in 1911, headquartered in McLean, Virginia
CEO: Poul Weihrauch
Number of employees: 130,000
Total Revenue: 42.838bn Founded in 1906, headquartered in Battle Creek, Michigan
CEO: Steve Cahillane
Number of employees: 23,000
Market Cap: 27.817bn
EV: 33.872bn
Total Revenue: 12.799bn
LTM EBITDA: 2.032bn
TEV/Revenue: 2.6x
TEV/EBITDA: 15.6x
Projections and Assumptions
Short-term Consequences
Mars’ acquisition of Kellanova will have significant and immediate impacts on the food and beverage industry. The deal enables Mars, who has a strong presence in the sweets and candy industries, to expand its product portfolio into the salty snacks industry, reaching a larger customer base and expanding into previously untapped markets. The demand for healthier food options is increasing as consumers prioritize wellness. While Mars previously struggled to gain traction in the breakfast cereal sector, Kellanova’s portfolio, which specializes in healthier breakfast options, provides a lucrative entry point for Mars and complements its existing portfolio.
The acquisition, however, will still need considerable effort to consolidate resources, streamline functions, and integrate supply chains. Mars has a history of effectively integrating acquisitions (e.g., Wrigley, KIND, etc.) by refining supply chains to maximize operation efficiencies, leading to expected cost synergies in manufacturing and marketing. Mars' global network would lead to significant savings for Kellanova’s operations while joint marketing will improve brand visibility. Mars and Kellanova’s integration can also lead to cross-brand promotional opportunities with bundled products or ones marketed together. Revenue synergies be realized by combining Mars sweet portfolio with Kellanova’s salty one to create new and unique products which target a large consumer base. Mars will need to maintain and preserve Kellanova’s brand and products, though, as consumers might perceive changes in branding and packaging as negative and a disruption.
In the broader industry, this deal is expected to increase competition. Rival companies may accelerate their own mergers and acquisitions or other business ventures, particularly in the snack and health-focused sectors. This acquisition also exemplifies the trend of consolidation within the food and beverage industry as companies are seeking to keep up with evolving consumer preferences and economic uncertainties by scaling up and diversifying their portfolios.
Long-term Upsides
This acquisition will have long-term benefits both strategically and financially. Strategically, Mars will be positioned as a more diversified global leader in food and beverage, better balancing revenue streams across many high-growth categories like healthy snacks, cereals, and plant-based foods. Kellanova’s established and popular brands such as Pringles and Cheez-Its allow Mars to continue capitalizing off the global snack market and solidify their dominant position. In the ready-to-eat global snack market, this deal would give Mars a stronger position in the broader global snack market as the global healthy snack market, which has a CAGR of 6.0% over the next decade. As consumers are getting used to higher prices from the COVID-19 pandemic, snacking companies are reaching record-high profits.
Kellanova has established a strong presence in emerging markets, particularly in Africa, Asia and Latin America whereas Mars has a dominant presence in China and broader Asia. Its complementary strengths can provide Mars with infrastructure and market insights, accelerating the integration process and capitalizing off well-developed operations. This is particularly significant in Asia-Pacific, where rising incomes and urbanization are driving demand for convenient, premium food products.
For Kellanova, this acquisition offers the opportunity to restimulate its presence in markets where its performance has slowed. While Kellanova has maintained a strong foothold in the U.S. and Europe, its efforts in Asian and Middle Eastern markets have been less successful. With Mars’ extensive distribution network and resources, Kellanova can scale its operations and broaden its market share internationally.
Kellanova’s emphasis on health-conscious and sustainable products aligns with Mars’ long-term strategy of addressing evolving consumer demands in ethical and sustainable ways, demonstrating a cultural fit. Its success in plant-based foods (e.g., MorningStar) complements Mars Edge’s commitment to innovation in nutrition, allowing for synergies in R&D. With Mars and Kellanova’s joint efforts, they are well positioned to capitalize on the shift in consumer diets. Kellanova’s long-standing partnerships with local communities in Africa and Latin America also parallel Mars’ focus on environmental and social governance principles. This alignment will make for a smoother integration.
While Kellanova faced challenges from rising input costs and logistical disruptions during the COVID-19 pandemic, Mars’ resources and strategic planning are expected to stabilize operations. In particular, Mars’ financial support will enable Kellanova to reinvest in research and development, positioning it as a pioneer in sustainable and health-oriented products. The integration is expected to enhance Mars’s overall margins by tapping into Kellanova’s higher-margin snack segment from their premium products. Long-term, this deal strengthens Mars’s ability to invest in innovation, expand its sustainability initiatives, and build resilience against market volatility, ensuring consistent value creation for stakeholders. Mars reported that the acquisition of Kellanova would help propel its plan to double the business in the next decade.
Risks and Uncertainties
A major challenge lies in successfully integrating the two companies, particularly given their distinct operational models. Mars, a privately-held company with a long-term focus, will need to align its approach with Kellanova’s more corporate, shareholder-driven decision-making structure. Poor integration could result in operational inefficiencies, employee dissatisfaction, or a loss of brand equity for either company.
Supply chain disruptions present another risk, especially given current geopolitical tensions and global economic instability. Kellanova’s heavy reliance on grains for its cereal products, for example, makes it vulnerable to small shifts in price and supply shortages. Rising prices in grains and packaging materials pose challenges in maintaining high profit margins. Mars must tackle these vulnerabilities by strengthening supply chain resilience to best realize synergies from the acquisition, potentially by diversifying suppliers or through vertical integration. Global inflation and potential recessions also pose a risk to the future performance of Mars and Kellanova. With Kellanova’s focus in emerging markets, which come with heightened political and economic risks, it could be subject to disruptions of its predicted growth.
In terms of valuation, Mars will be acquiring Kellanova at a significant premium of 33% over its unaffected 52-week high of August 2, 2024. While this underscores Mars' confidence in Kellanova’s future, it also raises the risk about whether Mars can realize the returns to justify the cost. Although the premium may seem high, the EV/EBITDA multiple, 16.4x, is on the lower end of precedent transactions seen in the snacking sector.
Shifting consumer preferences and environmental concerns also pose long-term risks. The growing focus on health and wellness, while aligned with Kellanova’s strategy, might require continuous investments in reformulating products, which could minimize profit margins. Similarly, sustainability pressures, such as the transition to environmentally friendly packaging and carbon-neutral operations, will require significant capital expenditures.
Finally, the deal brings up potential antitrust concerns. The top 4 companies of snack bar, cookies & crackers, and candy sales make up more than 60% of the sales in those categories, of which Mars and Kellanova are consistently included. Kellanova’s CEO has stated that besides snack bars there is minimal overlap in their business operations. However, with the size of this deal, there will be increased scrutiny from regulatory authorities. Mars track record of acquisition does suggest, though, that their transparent communication and proactive planning, as seen with the KIND acquisition, that these concerns may be mitigated.
Sources
https://www.pkfod.com/insights/u-s-food-beverage-industry-update-q2-2024/
https://www.kellanova.com/us/en/home.html
https://www.grandviewresearch.com/industry-analysis/healthy-snack-market
https://www.fooddive.com/news/Mars-Kellanova-Mondelez-Pepsico-merger-snacking/724597/
https://www.marketingweek.com/mars-acquire-kellanova-36bn/
https://www.mars.com/news-and-stories/press-releases-statements/mars-acquisition-august-2024
https://www.foodandwine.com/mars-kellanova-acquisition-8696321