You might have heard by now that Quest Nutrition (maker of the famous Quest Bar) was Acquired by Simply Good Foods for $1 Billion. Yes, one billy goat!
I’d imagine most of my readers might be thinking who the heck is Simply Good Foods…
Simply Good Foods
Simply Good Foods (Nasdaq: SMPL) is the parent company that owns Atkins Nutritionals. For my old-school “diet trend” readers, you might be having flashbacks to your foray in the Atkins Diet during the early 2000s. Atkins Nutritionals products comprise of nutrition bars, ready-to-drink shakes, snacks and other confectionery products. The parent company also owns Simply Protein, a high-protein healthy snacks company, which is mostly found in the grocery channel.
Simply Good Foods was formed in April 2017 from a SPAC (special purpose acquisition company) acquisition from an offshoot of Centerview Capital. The private equity firm Centerview Capital is managed by Partner (and Chairman of the Board for Simply Good Foods) Jim Kilts. Mr. Kilts has a CPG resume that can put him on the CPG Mount Rushmore.
- CEO of Gillette
- CEO of Nabisco
- CEO of Kraft Foods (before it was called that)
For those that follow my J. Schall Consulting LinkedIn Corporate Page, I cover Simply Good Foods during my “earnings season takeover” posts, so you might be familiar with their recent performance. If not, Simply Good Foods has been having a breakout year, with YTD fiscal net sales of $385M. This is yearly comparative growth of 19%, but from the below image, you can see that the 2019Q3 net sales and volumes are outpacing earlier in the year.
Simply Good Foods revenue come primarily from Mass, Food, and Club channel partners.
For those that have been living under a rock of gluttony for the last decade, Quest Nutrition is a healthy lifestyle food company that was started in 2010 by Tom Bilyeu. The company grew by an eye-watering 57,000% over their first three years in business. If you haven’t heard the creator’s story on why/how Tom started Quest Nutrition, I suggest you listen to one of the various podcasts where he explains it. It’s a very interesting story!
Quest Nutrition is famously the maker of the Quest Bar. Quest Bar was THEE bar for era of high-protein “putty-like texture” bars made from high amounts of soluble corn fiber. While that description might sound like I didn’t consume 1000s of them during this decade, you’d be wrong! I just believe that protein bars go through eras every 5–7 years and we are currently midstream into a more functional minimal protein bar era (made famous by RXBAR).
In 2019, Quest Nutrition is projected to reach sales of $345 million. That is extremely impressive, but they actually had a projected sales number of $300 million in 2015. That is when VMG Partners invested in Quest Nutrition at a post-money valuation of $900. The post-money transaction for Quest Nutrition from Simply Good Foods only netted approximately $870 million. I am not making this point to throw shade on VMG Partners, because I personally love their company, team members, and what they are doing with CPG “better for you” investing. Instead, this was a point made about the “A” SKU (Quest Bar) having a slight erosion in sales.
Regardless, Quest Nutrition has diversified from the fickle protein bar category to add other “better for you” offerings in categories, such as pizza, chips, cookies, and ready-to-mix powders. This has helped back-fill revenue lost from the erosion of sales from Quest Bar, which makes up about 70% of the sales.
Why did Simply Good Foods purchase Quest Nutrition?
- Quest Nutrition has a highly attractive, complementary portfolio of nutritional snacking products to Simply Good Foods. These products compete in many attractive, fast growing sub-segments within the nutritional snacking category.
- Quest Nutrition has an extremely loyal following and favorable customer demographic profile with strong appeal among consumers 18–44 years old with almost no overlap with the Atkins consumer.
- Quest Nutrition has a growth trajectory and innovation pipeline that provides financial flexibility to continue investing in the business to expand margins that should, over time, be relatively similar to Simply Good Foods.
- Quest Nutrition will enable Simply Good Foods to benefit from its effectiveness within e-commerce, social platforms, specialty and other non-tracked distribution channels. On the other hand, Quest Nutrition will benefit from Simply Good Foods’ expertise in building distribution in food/drug/mass channels and growing brand awareness via broad reach media.
- The transaction also delivers on key growth criteria that was originally set out in the SPAC Atkins Nutritionals investment deck. It will also help achieve an estimated $20 million in cost synergies over three years by leveraging efficiencies of scale.
What’s Next for Simply Good Foods?
This will not be the last acquisition by Simply Good Foods, as they are dead set on creating a “healthier for you” CPG mega portfolio. Even if you look at the SPAC investment document for Simply Good Foods, you will see that they highlight future snacking CPG and FMCG M&A activity.
As I have mentioned during previous pieces of content this year, the M&A environment is strong for consolidation in the CPG industry. Expect to see more pieces of content like this from me in the near future, as large CPG portfolios and private equity firms continue to invest in the space.