ORRVILLE, OHIO — After several consecutive quarters of poor sales performance from its Natural Balance premium pet food brand, The J.M. Smucker Company on Dec. 3 opted to divest the brand, selling it to Nexus Capital Management LP for approximately $50 million.
The Natural Balance business generated net sales of approximately $220 million for the company's fiscal year ended April 30 which were reported in its US Retail Pet Foods segment.
A definitive agreement between Smucker’s and Nexus Capital, signed by Nexus on Dec. 4, is subject to a working capital adjustment and one-time cash tax benefit to be realized upon the final sale of the brand. The deal includes all pet food products sold under the Natural Balance brand, including trademarks and licensing agreements.
"We are extremely excited by the opportunity to acquire the Natural Balance business," said Damian Giangiacomo, partner at Nexus. "We believe in the brand's strong legacy and the ability to reinvigorate the business as an independent company in partnership with the strong management team we have assembled."
Select employees will leave Smucker’s to join Nexus Capital to continue supporting the brand. Brian Connolly was announced Dec. 4 as the new chief executive officer of Natural Balance.
"Brian played a critical role on our deal team throughout due diligence and crafting the go-forward strategic and operating plan for the business," Giangiacomo said. "Brian's successful 20 years of experience in pet food as the co-founder of Castor & Pollux and former board member at Merrick Pet Care ideally position the Natural Balance brand for continued relevance with pet specialty retailers and pet owners."
Connolly added, "Natural Balance has long held a leading position as a pioneer in the premium pet food industry. I look forward to working with the Nexus and Natural Balance teams in a new phase of investment, innovation and increased commitment to the pet specialty channel and its customers."
The Natural Balance brand includes premium dog and cat food and treat products. Under The J.M. Smucker Co.'s ownership, the brand underperformed in terms of sales compared to the CPG company's other value brand dog food, cat food and pet treat brands. Natural Balance was acquired by Smucker's as part of its acquisition of Ainsworth Pet Nutrition in April 2018.
"The divestiture reflects our strategy to direct investments and resources toward areas of the business that will generate the greatest growth and profitability," said Mark Smucker, president and chief executive officer of The J.M. Smucker Co. "Today's announcement helps the Company further focus on the core brands within our pet food and pet snacks portfolio including Rachael Ray® Nutrish®, Milk-Bone® and Meow Mix® among others, which together create a unique portfolio with significant long-term growth potential that meets consumer needs across value, mainstream and premium offerings."
The transaction is expected to be finalized in the third quarter of Smucker’s fiscal year, which will be in early 2021 at the latest. The company said it “anticipates the earnings impact will be immaterial” regarding this divestiture, and plans to discuss the financial impact as part of its next earnings report in February 2021.
Smucker’s said it expects the divestiture to dilute its adjusted earnings per share (EPS) by between $0.05 and $0.10 on a full-year basis.
Recently across all product categories, the company reported a 4% year-over-year increase in net sales from $1.96 billion to $2.03 billion in the second quarter of the company’s fiscal 2021, ended Oct. 31, 2020.
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