Success in the Sauce: Campbell to Acquire Sovos Brands

On Aug 7, 2023

Camden-based Campbell Soup Company will acquire Sovos Brands, Inc., producer of pasta sauces, dry pasta, soup, frozen pizza, and more, for $2.7 billion ($23 per share in cash). The transaction adds a high-growth, market-leading premium portfolio of brands to diversify and enhance Campbell’s Meals & Beverages division, providing a substantial runway for sustained profitable growth.

Sovos Brands had annual adjusted net sales of $8372 million in calendar year 2022 and is a compelling growth story as a North America focused food company with compounded annual organic net sales growth rate of 28%3 from fiscal 2019 to fiscal 2022, offering a variety of premium products under the brand names Rao’s, Michael Angelo’s and noosa.

The flagship Rao’s brand, which represented approximately 69%4 of Sovos Brands adjusted net sales in fiscal 2022, grew organic net sales by 34.9%5 compared to the prior year.

“We’re thrilled to add the most compelling growth story in the food industry and welcome the talented employees who have built a nearly $1 billion portfolio,” said Campbell’s President and CEO Mark Clouse. “This acquisition fits perfectly with and accelerates our strategy of focusing on one geography, two divisions and select key categories that we know well. Our focused strategy has enabled us to deliver strong results over the last five years, enhance our brands and capabilities, and generate strong cash flow to lower debt. With all this progress, I am confident in our readiness to execute and integrate this important acquisition. The Sovos Brands portfolio strengthens and diversifies our Meals & Beverages division and paired with our faster-growing and differentiated Snacks division, makes Campbell one of the most dependable, growth-oriented names in food.”

“Today marks a momentous occasion for Sovos Brands as we announce our plans to join the Campbell’s family,” commented Todd Lachman, founder, president and chief executive officer of Sovos Brands, Inc. “We have built a one-of-a-kind, high growth food company focused on taste-led products across a portfolio of premium brands, anchored by the Rao’s brand. Our success would not have been possible without the incredibly talented and passionate team at Sovos Brands, which has been instrumental in building one of the fastest growing food companies of scale in the industry today. This transaction is expected to create substantial value for our shareholders, resulting in a 92% increase from our 2021 IPO price. As one of the most trusted and respected food companies in North America, I’m confident in Campbell’s ability to continue bringing our products to more households and further building on our track record of growth and success for years to come.”

According to Campbell’s, the rationales behind the transaction include:

• Multi-dimensional Value Creation
  • Acquisition unlocks significant value through strong and sustainable growth opportunities
  • Expect a fast, effective and efficient integration and synergy unlock given familiarity with categories and Campbell’s strong capabilities, processes and proven integration playbook
  • The acquisition is expected to provide considerable earnings growth contribution to the division while unlocking additional value through meaningful cost synergies
  • Campbell’s supply chain excellence and scale are expected to drive operating synergies for Sovos Brands, while improving scale efficiency of Campbell’s core operations
• Attractive Sustainable Profitable Growth
  • Significant whitespace opportunity for Rao’s and Michael Angelo’s through increased distribution, growing items per store and household penetration to category peer levels
  • Campbell’s expertise in retail execution is expected to enhance shelf productivity, geographic footprint, and sub-category penetration
  • Sovos Brands’ expertise in innovation, category expansion and the marketing of high-growth brands is expected to enhance and strengthen Campbell’s capabilities as the portfolio continues to transform
• Accelerates Campbell’s Focused, Strategic Plan
  • Further advances the company’s focused one geography, two division roadmap – Meals & Beverages and Snacks
  • Solidifies role of Meals & Beverages as a sustainable and dependable contributor to the enterprise, by complementing a stable, core portfolio in mainstream product categories with a fast-growing differentiated, premium segment
  • Delivers Campbell’s $1 billion sauces strategic objective by filling in critical white space in the growing ultra-distinctive Italian sauce category, a segment where Campbell’s does not currently compete
  • Extends Campbell’s presence into the fast growing, on-trend, premium frozen meals segment with Rao’s and Michael Angelo’s, while adding meaningful scale to the existing Pepperidge Farm’s frozen portfolio

The closing of the transaction is subject to Sovos Brands stockholder approval and customary closing conditions, including regulatory approvals. Closing is expected by the end of December 2023. The transaction has been approved by both Boards of Directors.

Skadden is advising Goldman Sachs & Co. LLC as financial advisor to Sovos Brands, Inc, and the Skadden team includes M&A partners Alexandra McCormack and Paul Schnell; and Corporate associates Cameron Adamson and Xiang (Shawn) Li.

Evercore acted as Campbell’s lead financial advisor in this transaction. Davis Polk & Wardwell LLP acted as Campbell’s legal counsel. Goldman Sachs & Co. LLC and Centerview Partners LLC acted as financial advisors to Sovos Brands, and Hogan Lovells US LLP and Richards, Layton & Finger, P.A. acted as legal counsel. Weil, Gotshal & Manges LLP acted as Advent International’s legal counsel.

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