B&G Foods Spices Things Up With New Acquisition

D.A. Davidson views the recent B&G Foods, Inc. (NYSE: BGS)'s acquisition of spices and seasonings business ACH Food Companies as positive and "a good strategic fit," as it complements Mrs. Dash, Ac'cent, and others in B&G's existing portfolio.

The brokerage said the $365 million transaction is priced at 9.4x EBITDA or 7.2x post $83 million NPV of tax benefits. The ACH deal is expected to add $220 million–$225 million in sales, $38 million–$40 million in EBITDA, and $0.26–$0.28 in EPS.

"The deal will grow B&G's presence in center-of-the store (65 percent of the current portfolio). The business should be very accretive from the onset and produce cash flow in years to come; that said, the growth of the brands may be somewhat limited," analyst Eric Gottlieb wrote in a note.

Related Link: B&G Foods Downgraded To Neutral By D.A. Davidson Following Equity Offering

The analyst noted that Mrs. Dash sales have been fairly flat since 2012, hovering in the $60 million–$65 million range while Ac'cent has remained in the $18.0 million–$19.5 million range with declining results.

"EBITDA margins for the business in the 17–18 percent range are well below the company average of 22–23 percent," Gottlieb continued.

That said, Gottlieb raised his FY16 EPS estimate to $2.16 from $2.13 and FY17 EPS view to $2.40 from $2.13 on account of the acquisition.

However, the analyst remains Neutral on B&G shares, with $52 price target.

At time of writing, B&G was up 1.63 percent on Thursday, trading at $50.44.

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