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Pringles and M&M’s are not a particularly appetising pairing. That is, unless you are Mars.
The US candy giant, home of Snickers and Skittles, is in talks to buy snack maker Kellanova. The latter, created when Kellogg split itself into two companies last year, has a market value of about $25bn. Its brand portfolio includes Cheez-It, Pop-Tarts and RXBar.
For Mars, Kellanova is an opportunity to diversify its chocolate-heavy portfolio with savoury snacks and give it more exposure to international markets. But too high a takeout price — which could be between $30bn to $33bn — risks a bad case of indigestion.
It is not hard to see why Mars has the M&A munchies. The snack food industry is being squeezed on multiple fronts. The explosive popularity of Ozempic, Wegovy and other appetite-suppressing medications is changing America’s eating habits. The drugs help reduce cravings, notably for sugar-laced foods. While privately held Mars does not break out its sales data, those from publicly listed candy makers suggest consumers are cutting back on sweets.
At Hershey, sales volume for its North America confectionery unit was down 1.9 per cent last year. At Mondelez International, sales volume for snacks — a category that includes biscuits, chocolate, gum and candy — has fallen for three consecutive quarters. In Europe, Swiss chocolatier Lindt & Sprüngli only managed to eke out a 0.2 per cent increase in sales volume for 2023. Price increases have helped offset the weaker demand. But the effectiveness of that strategy is fading as consumers start to push back against higher prices.
Mars generates about $50bn in annual sales. It has said it wants to double the revenue from its snacking division from $18bn last year to $36bn over the next decade. Kellanova, which reported $13bn in net sales last year, would go some way to helping it reach that goal.
JPMorgan analysts had a look at 40 deals in the US snacking sector over the past decade. They found that for deals above $1bn in size, the median EV/ebitda and EV/sale ratios were 15 times and 3 times. Apply these to Kellanova and you would get an equity value of $30.4bn and $33.4bn — or $36bn to $39bn once you include debt.
Mars is no stranger to taking big bites. It bought chewing gum maker Wm Wrigley Jr for about $23bn back in 2008. With few sizeable US snacks groups left, it may stump up again in order to better compete against the likes of Mondelez, Nestlé and PepsiCo. But consumers are increasingly opting for healthier snacks: splashing out to buy more junk food risks leaving a sour taste.
