The Latest Insight from Ascendant Partners, Inc.

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Kirk Martin
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Scott McDermott
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Mark Warren
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Sue Wyka
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Welcome to Ascendant Insight!

Insight Across the Supply Chain.

Welcome to the inaugural edition of Ascendant Insight! We view Ascendant Insight as our channel to share key learnings from our work serving middle-market food and agribusiness companies. The food and ag supply chain is complex with different competitive dynamics and success drivers depending on where in the supply chain a company operates. For a bulk commodity processor, operating efficiency and cost-competitiveness are paramount, but for a retail organic company, food differentiation and brand awareness are key focus areas. Our goal with Ascendant Insight is not just to analyze the dynamics in your part of the supply chain but also to share our insight into what your suppliers, customers, and competitors are focusing on so that you can continue to grow and thrive.  
Ascendant Insight.

Commodity risk or volatility and profit margins are two key drivers of company valuations for companies in the food and ag supply chain. As a company moves closer to its underlying commodity, its margins become smaller and more volatile. This leads to greater unpredictability for an owner and thus greater discounts on the company's valuation. To thwart commodity risk, companies tend to vertically integrate and move closer to their end markets. Buyers in this area of the supply chain tend to be large strategics with global footprints across a variety of commodities who understand commodity market volatility. Scale and operating efficiencies drive valuations higher and the asset intensiveness of these companies allow buyers to greater utilize debt to fund acquisitions.

As a company moves closer to the consumer they are able to typically capture greater margins and are further insulated from commodity volatility. This area of the supply chain can be crowded as companies compete for the consumer's attention and the retailer's shelf space. Companies with a niche product offering that appeals to consumer trends and has loyal, almost cult-like following, will attract the greatest valuations. Financial buyers are important sources of capital for companies with nascent products as they are willing to take greater risk to take a fledgling product that is gaining consumer awareness and supply it with capital to accelerate its growth. Strategics get involved with these branded product companies when a clear following has been established and it can use its existing supply chain to drive growth further and create efficiencies in production. Valuations are typically based on multiple of sales, growth potential, and consumer trends.

Transaction Profiles.

Here we will highlight key deals that have occurred since our last newsletter and highlight current valuation trends. In this newsletter, we look at how large agri-business companies, ADM and Ingredion, and an established retail food company, WhiteWave, are working to stay competitive in the face of changing consumer preferences.

A look across the supply chain will show that valuations continued to remain strong through December. Companies that can provide a unique service or product to the market or its acquirer typically see higher valuations. Currently, we are seeing that companies with a unique offering in specialty commodities and foods have realized higher valuations. Acquirers, including strategic and financial, have been able to pay those higher multiples because of strong credit markets and an abundance of cash on corporate balance sheets.

 & So Delicicious - September 2014

Deal Terms: $195MM Purchase Price
                        1.69x Sales

WhiteWave continues to strengthen it's position in the dairy-alternatives space with the acquisition of So Delicious, a producer of dairy-free frozen desserts, beverages, cultured products, coffee creamers, and more. So Delicious' No. 1 position in plant-based frozen dessert category will compliment WhiteWave's other leading brands including its Silk brand almond milk.

 & Specialty Commodities - October 2014

Deal Terms: $191MM

The acquisition of Specialty Commodities by ADM is another milestone in its trend to insulate it's core commodities business with higher value ingredients businesses. Specialty Commodities has built a business as a processor and distributor of healthy ingredients to natural and healthy food companies. The acquisition gives ADM immediate entr�e into the fast growing natural and organic food categories with customers in the snack, ice cream, cereal, nutrition bar, health food, bakery, pet food and bird food markets.

 & Penford Corp. - October 2014

Deal Terms: $340MM Purchase Price
                        0.8x Revenue
                        12x EBITDA  
Ingredion purchased Penford Corp., a specialty starch producer, in an effort to address the growing consumer trends such as gluten-free and sustainable solutions. In addition to new market access Ingredion will expand its geographic reach with the acquisition. Ingredion expects the synergies it will realize to lower the EBITDA multiple it paid to 7x. The acquisition is another example of processors looking for opportunities to gain a foothold in emerging consumer trends and isolate their base operations from commodity market volatility.

Earnings Spotlight.

The earnings spotlight highlights several companies in the natural food, commodity processing, and protein industries and will provide an understanding of how these companies are operating and positioning themselves within their industries. 


WhiteWave Foods (WWAV) - Revenue growth of 34% was due in part to the Earthbound Farm acquisition and pricing gains outpacing input costs. The company's Silk brand continues to hold 70% of its product category. While the company continues to see strong results, limited organic milk supplies could limit growth with its Horizon Organic milk line. 


Boulder Brands (BDBD) - The Smart Balance brand, the companies legacy business, continued to decline due to changes in consumer preferences. Growth in its natural products category is driving lower margins and management indicates they won't meet 2014 margin targets. The company also indicated that inventory management problems led to less than expected results.  


Treehouse Foods (THS) - Treehouse continues to look for acquisition opportunities despite the $1B in acquisitions it has completed this year. The organic business now accounts for 10% of Treehouse and will continue to grow. Treehouse should see continued growth as private labels continue to be an area of emphasis for retailers and consumers.

ADM (ADM) - ADM has been busy with acquisitions and divestitures with the sale of its chocolate business to Cargill and acquisition of Wild Flavors, Specialty Commodities, and Harrell Nut Company. In December, ADM announced it is selling its cocoa business to Olam International for $1.3B. 

Bunge (BG) - US crush margins are benefiting from strong demand domestically due to favorable livestock margins and internationally due to competitive US grain prices. Bunge is targeting 35% of EBIT from its food and ingredient business.

The Andersons (ANDE) - Strong margins carried The Andersons most recent operating results while the grain operations continued to expand with acquisitions in Texas and North Central Michigan.


Tyson Foods (TSN) - Strong demand and tight supplies were the catalyst for results as consumers shifted from the higher priced beef segment to chicken. Looking to 2015, Tyson sees higher chicken demand and lower feed costs which could lead to continued strong results for the company. Tyson continues to right-size operations with several announced closings and opening and expansions at other including Emporium, KS and Storm Lake, Iowa.

Hormel (HRL) - Hormel continues to look for opportunities that fit their strategies with brands that are number one or two in the market place, accretive to margins and overall profits, with a global footprint, and fit the health and wellness trend appealing to younger consumers in the snack area.

Sanderson Farms (SAFM) - Results from the company were strong due to lower corn prices and higher prices for poultry products in the quarter. Expansion continues at its Palestine, TX facility where at full capacity it will represent 16% of Sanderson's total capacity.

Thank you for allowing us a moment of your time this quarter. If you would like to discuss this or other topics or if you have suggestions for future issues, please don't hesitate to reach out to us. Our goal, as always, is to add value for you. Any replies will go directly to Ascendant.

- The Ascendant Partners Team