Simply Good Foods muscles up its nutritional snacking standing with US$1bn Quest purchase

26 Aug 2019 --- Nutritional foods and snacking products player The Simply Good Foods Company (Simply Good Foods) is to acquire Quest Nutrition (Quest), a healthy lifestyle food company in a US$1 billion move. Simply Good Foods’ Atkins brand of protein-rich food products and shakes will be complemented by Quest and the move is expected to propel the company higher into the nutritional snacking space. The transaction has been unanimously approved by the Board of Directors of Simply Good Foods and is expected to close by the end of 2019. Snacking is enjoying accelerated popularity among consumers and the space is booming with NPD and investment ventures.

Quest is an active lifestyle brand whose philosophy focuses on creating snacks that contain high protein levels with minimal sugars and net carbohydrates. The pairing of the brands will result in a nutritional snacking company powerhouse with combined estimated net sales of over US$800 million and strong operating margins. This combination positions Simply Good Foods to continue to benefit from consumer megatrends related to healthy eating and better nutrition as both Atkins and Quest products offer consumers a smart and convenient approach to healthier snacking.

“The acquisition of Quest strengthens Simply Good Foods’ position within the nutritional snacking category by expanding our portfolio of brands and product offerings while also providing us with greater consumer and channel diversification,” says Joseph E. Scalzo, President and CEO of Simply Good Foods. “This combination delivers on our strategy to become a broader nutritional snacking company that offers consumers a broad range of brands and products that satisfy their nutritional needs,” he adds.

Quest's Tortilla Style Protein Chips.“We also believe that our collective brands will benefit from increased cross-selling and marketing opportunities, as well as enhanced go-to-market strategies that will drive meaningful net sales and earnings growth. Both Quest and our existing brands will benefit from sharing best practices and insights in marketing, distribution and supply chain management to deliver on our commitment to customers and consumers.”

Healthy snacking on the rise
Innova Market Insights data shows that snacking is a central focus of innovation across all food and beverage categories, with 10 percent average annual growth of global launches with a snacking claim over the past five years (CAGR, 2013-2017).

The market researcher also reports that 63 percent of millennials are replacing meals with snacks because they are busy (Consumer Lifestyle and Attitudes Survey, 2018). But it is not only about addressing this demographic. Fifty percent of Gen X’ers are “inclined to cut down on their sugar consumption” and 67 percent of boomers are “making changes to their diet to become healthier” according to the survey. Based on the results, one could argue that there are numerous product development avenues to follow for healthier snacking.

Quest’s products – primarily bars, cookies, chips and pizza – compete in many of the attractive, fast-growing sub-segments within the nutritional snacking category. Quest has a loyal following and favorable demographic profile with strong appeal among consumers 18-44 years old with almost no overlap with the Atkins consumer.

In the past, the brand has released innovations such as its Tortilla Style Protein Chips. The savory snacks feature at least nine times the protein of conventional chips, according to the company and approximately 75 percent lower net carbs.

The company also notes that the transaction will enable Simply Good Foods to benefit from Quest’s effectiveness within e-commerce, social platforms, specialty and other non-tracked distribution channels. Meanwhile, Quest will benefit from Simply Good Foods’ expertise in building distribution in FDM (food/drug/mass) channels and growing brand awareness via broad reach media. In addition, the transaction will deliver on key growth criteria while achieving an estimated US$20 million in cost synergies over three years by leveraging efficiencies of scale.

Simply Good Foods says it intends to finance the transaction by using approximately US$225 million of cash on its balance sheet as well as committed financing from Barclays, Credit Suisse and Goldman Sachs. The Company also anticipates issuing equity and, given the expected solid cash flow generation of the combined businesses, anticipates a net debt to Adjusted EBITDA multiple of 4.0x or less by fiscal year-end August 2020.

Edited by Kristiana Lalou

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