TreeHouse to sell large part of meal prep business for $950M

Dive Brief:

  • TreeHouse Foods is selling a significant portion of its meal preparation business to Investindustrial, a U.K.-based investment group, for $950 million, the company said in a statement. The divestiture, which is expected to close in the fourth quarter, includes offerings like pasta, red sauces, syrup and pourable dressings. 
  • The private label maker said the sale will simplify its business and allow it to do a better job focusing on and investing in higher-growth, higher-margin food categories within snacking like bars, cookies and crackers. 
  • The sale comes amid a resurgence in private label demand as consumers, facing escalating costs for everything from gas and clothing to food and medical care, are purchasing more of these items to save money. 

Dive Insight:

TreeHouse was built through the combination of more than 40 mergers that created the nation’s largest manufacturer of private-label products. Now, the Illinois-based company, which has already undergone a dramatic change under CEO Steve Oakland through the closure of plants and a reduction of SKUs, is taking its biggest step yet to improve its business.

The sale of much of its meals prep business will leave a leaner and more agile TreeHouse that will be able to focus on the fast-growing snacking segment popular with consumers. It marks the second major deal for TreeHouse following the divestiture of its ready-to-eat cereal business to Post Holdings for $85 million last year. 

The new TreeHouse will get roughly 60% of its revenue going forward from snacks and beverages compared to 40% before the transaction, Oakland told analysts in a conference call Thursday morning.

Under its current structure, TreeHouse has a presence in 29 categories, operates 40 plants and has 14,000 SKUs. Once the sale is completed later this year, that will shrink to 18 categories, 26 plants and 9,000 SKUs. The remaining business is expected to bring in $3.5 billion in net sales for 2022.

Oakland said the sale comes as TreeHouse capitalizes on heightened demand for private label, making now the right time to offload the meal prep business. “The positive demand trends for private label are clear and simplifying our business will position us to better capitalize on those trends to drive value now and well into the future,” Oakland said in a statement. 

While consumers are still spending more time cooking at home, and will likely continue to, the segment is not expanding at the same pace as snacks. TreeHouse clearly feels its growth prospects are brighter under a smaller operating structure where it can focus its attention largely on one food segment.

“They’re just not the same growth and margin profile that we think we can be if we focus on snacking and beverage,” Oakland said told analysts. “This transaction was designed to put us in more advantaged categories, categories that are more consumer-trend friendly and we’ll build depth where we don’t have it.”

The acquirer, Investindustrial, already has a large presence in private label preserved vegetables, peeled and chopped tomatoes, fruit juices and pasta sauces in Europe. The purchase will create one of the largest suppliers of private label food products in the world, the firm said. On the same day that its TreeHouse meal prep purchase was announced, Investindustrial said it was also purchasing Parker Food Group, a U.S.-based provider of value-added ingredients, for an undisclosed amount. 

TreeHouse said the cash from the sale will be used primarily to reduce debt and strengthen its balance sheet, and to invest in snacking and beverage categories that present attractive growth opportunities. Oakland said TreeHouse has opportunities in single-serve beverages and crackers.  

The sale comes as TreeHouse has been dealing with Jana Partners, an activist investor.

Jana had pushed for TreeHouse to sell itself, but the company scrapped that idea in March and instead said it would consider divesting certain parts of the business. Still, a slimmed-down TreeHouse, posting higher margins and faster growth, could ultimately attract private equity or another investor interested in buying the remaining company.