Campbell Soup acquires parent company Rao's Pasta Sauce for $2.7 billion

Campbell Soup Company (CPB) acquired Sovos Brands, Inc . (SOVO)—the parent company of brands such as Rao's pasta sauces, Noosa Yoghurt, and Michael Angelo's Italian frozen foods—for $2.7 billion

Key Points

  • Campbell Soup Company Acquires Sovos Brands for 23 $ per share, valuing it at $2.7 billion.
  • Rao's, owned by Sovos Brands, accounts for nearly 70% of the company's net sales and has seen a significant growth.
  • Sovos also released its fiscal second quarter results today, with strong adjusted EBITDA growth.

What's wrong?

The deal closed at $23 per share in cash, about $5 above Sovos' closing price of $18.02 on Friday, August 4. This puts the enterprise value of Sovos at approximately $2.7 billion, a 92% increase over the closing price of Sovos stock. IPO price of the company in 2021. The cash purchase will be funded by issuing new debt with a projected leverage of 4.7x.

Sovos Brands also released its second quarter 2023 earnings report on Monday. Organic net sales growth of 16.3% for the quarter was largely driven by increased sales volume and price growth. Adjusted EBITDA increased 36.9% year-over-year, while marketing and R&D expenses increased 35.6%.

Campbell Hungry For Rao's?

Rao's, which accounted for 69% of Sovos' net sales in fiscal 2022, increased its organic sales by 35% over the prior year. The maker of potted pasta sauces was likely a key motivation in the acquisition, which “exceeds [Campbell's] stated strategic goal of building a billion-dollar sauces business by entering in the ultra-distinctive pasta sauce market”. #34;

Rao's is more than just a sauce brand: Consumption of its frozen foods, soups and pasta grew 38.0% year-over-year in second trimester. Campbell's sees the brand's “low penetration”. in adjacent categories (frozen meals, dry pastas and ready-to-serve soups) as a growth opportunity given the brand's momentum. That being said, Rao's pot sauce is not only popular, but considered quite high quality for a ready-to-eat product, receiving accolades from Bon Appetit among others.

Sovos stock rose around 25% in early trading Monday, while Campbell's shares fell around 2%. Shares of Sovos have gained about 57% year-to-date, although shares of Campbell have lost nearly 21%.


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