Utz is known for making and selling salty snacks including potato chips, pork rinds, and cheese balls.
DreamstimeUtz Brands has agreed to buy Truco Enterprises, which sells tortilla chips, salsa, and queso dips under the On the Border brand, for $480 million.
Insignia Capital Group, a private-equity firm, is the seller. Utz (ticker: UTZ) is buying all of Truco, including the rights to use the On the Border trademark to make, sell, and distribute snack foods in the U.S. and certain international markets, a statement said. (OTB snacks is different from the restaurant chain, which is owned by Argonne Capital Group.) The transaction is expected to close in December.
Truco develops and sells traditional and organic tortilla chips under the On the Border brand. It also offers dips, including salsas and queso. The company employs 50 people.
“We’re excited about the opportunity to buy Truco and OTB,” Dylan Lissette, CEO of Utz, told Barron’s. “They have a fantastic management team.”
Founded in 1921, Utz is known for making and selling salty snacks including potato chips, pork rinds, and cheese balls, under brands such as Utz, Zapps, Good Health, and Hawaiian. Utz will be celebrating its 100th anniversary next year and its goal is to remain “very relevant” in the salty snack industry, which continues to grow by 3% to 4% a year, Lissette said.
Tortilla chips, the No. 2 subcategory in salty snacks behind potato chips, has been one of Utz’s targets. The acquisition of Truco will make Utz a significant competitor in the subcategory, where On the Border currently holds the No. 3 position. The leader is PepsiCo (PEP) unit Frito-Lay, which has Tostitos and Doritos. Grupo Bimbo (BIMBO.Mexico), with Takis, is ranked second, he said.
Utz wants to participate in every salty snack subcategory, Lisette said. The company has a “great share” of potato chips and pork rinds, but was “really underweight in tortillas and popcorn,” he said. When it comes to popcorn, Lisette said he would always look at the category but doesn’t foresee a deal soon. “Right now, we’re 100% focused on making sure the Truco acquisition is consummated and working with the new team to continue to grow in tortillas,” he said.
On the Border has benefited from the Covid-19 pandemic, which has forced millions of people around the world to work from home. The tortilla chip subcategory, with $6.2 billion in retail sales, grew 10% for the 52 weeks ended Oct. 4, said Utz Chief Financial Officer Cary Devore. “Truco grew meaningfully in excess of that,” he told Barron’s. “Snacking has benefited meaningfully from Covid.”
Utz has long coveted Truco and pursued the company in 2016 but nothing came of it, Devore said. Truco went up for sale earlier this year, with an auction starting in midsummer. Corporate buyers and private-equity firms bid for the company, executives said. Utz executives didn’t physically go meet Truco staffers due to the pandemic but have interacted with them on multiple videoconference calls, Lisette said. “We’ve known some of these folks previously as well, pre-Covid,” Lisette said.
The acquisition will be accretive to Utz’s earnings starting in 2021 and beyond. Truco is expected to produce roughly $195 million in net sales and about $50 million in adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, excluding cost synergies, for fiscal 2020. Utz’s plans for On the Border include expanding into channels where OTB is underpenetrated, including grocery and convenience stores, a statement said.
The acquisition is the second Utz has done since merging with blank-check company Collier Creek Holdings in August. (Utz in September agreed to buy the H.K. Anderson peanut-butter-filled pretzel brand from Conagra Brands [CAG] for less than $10 million.) The Rice and Lissette family, the founding family and owners of Utz, retained more than 90% of Utz, a statement said. Utz wants to be like other enduring family-owned consumer packaged-goods brands, such as J.M. Smucker (SJM) and Hormel Foods (HRL), that are also public, Lisette said.
“We want to do acquisitions that make sense for the long term,” said Lisette, who will complete his 25th year with Utz later this month.
The deal represents a six-year hold for Insignia, which acquired Truco in July 2014. Truco’s adjusted Ebitda tripled during Insignia’s ownership, a separate statement said. “It has been a true pleasure partnering with the Truco team to generate this exceptional outcome for all of the Company’s stakeholders,” said David Lowe, CEO of Insignia Capital Group. “We believe Utz will be an exceptional steward of the brand as Truco executes on its next phase of growth.”
“Utz will be able to leverage its world class direct store delivery network to help expand our brand into new markets,” said Truco CEO Shane Chambers in a statement.
Tim Alexander, Ryan Freeman, and Zach England of Harris Williams advised Truco. Sanford Perl, Robert Wilson, and Melanie Harmon of Kirkland & Ellis served as its legal advisor. Vanya Kasanof of Goldman Sachs, along with BofA Securities, provided financial advice to Utz. Cozen O’Connor acted as the attorney for Utz.
Write to Luisa Beltran at luisa.beltran@dowjones.com
November 13, 2020 at 05:07AM
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Why Utz Paid $480 Million for On the Border Tortilla Chips - Barron's
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