Dive Brief:
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Nestlé is selling the North American business of its Buitoni pasta brand to private equity group Brynwood Partners, The Wall Street Journal reported. Sales totaled $130 million in 2019.
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The deal values the Buitoni’s North American business at $115 million, the paper said, citing a person familiar with the matter. Nestlé will retain use of the Buitoni brand in some markets, including Europe, where it is used for pizza and chilled dough. Nestle purchased Buitoni in 1988.
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The divestiture marks the latest change to the Swiss giant’s portfolio. In December, Nestlé announced it would sell its U.S. ice cream business to Froneri in a deal that valued the business at $4 billion.
Dive Insight:
Nestlé has been gradually tweaking its portfolio in recent years, and the sale of Buitoni in North America is just the latest in a series of moves to spur growth at the world’s largest food company.
Sanjay Bahadur, deputy executive vice president and head of group strategy and business development at Nestlé, told analysts in February the company has done more than 50 transactions since 2017 — representing about 12% of its portfolio, or $10.2 billion in value — after failing to meet its own growth targets. The majority of the deals have been divestitures of slower-growing businesses, or ones where Nestlé isn’t a No. 1 or No. 2 in the category. Nestlé ​​sold its U.S. chocolate business in 2018 to Ferrero for $2.8 billion, and then announced late last year it would sell its U.S. ice cream business, valued at $4 billion, to Froneri.
After coming under activist pressure three years ago, the world’s largest food manufacturer has been investing more in its water business and pet care. It also bulked up its offerings in coffee through the acquisition of Chameleon Cold-Brew and a $7.15 billion deal with Starbucks. At the same time, it increased its presence in plant-based foods by purchasing Sweet Earth and adding hamburgers, chicken, sausages and deli meat to the brand’s lineup.
It’s easy to see why Nestlé was looking to sell Buitoni. Henk Hartong, chairman and CEO at Brynwood, told The Wall Street Journal the brand was facing more competition in recent years from private label and refrigerated offerings.Â
“The Buitoni business has lost some momentum and market share,†Hartong told the business publication. “It showed year-over-year declines and losses of customers.”
These pressures are unlikely to abate anytime soon. And with consumers stocking up on shelf-stable foods like pasta as they spend more time at home because of the coronavirus pandemic, Nestlé is shrewdly striking while demand for pasta is high, even if Buitoni has been struggling of late.Â
As Nestlé continues to makes changes to its portfolio, the sale of Buitoni is unlikely to be the last. With the exception of the Starbucks deal and a handful of others, Nestlé has largely steered away from big-ticket purchases, instead preferring to turn to bolt-on deals that allow it to enter fast-growing spaces or complement existing brands in is portfolio.
For the most part, CPG companies have bypassed big deals after going on acquisition binges. Many of these deals boosted their portfolios, but saddled their balance sheets with huge amounts of debt, forced them to rein in spending that stifled R&D innovation, and in many cases failed to generate promised synergies. While other food companies have added bars, frozen foods or better-for-you-brands, many have struggled to keep pace.
Even though Nestlé had long been known for ice cream and candy, it wasn’t afraid to jettison them in a bid to stoke growth. It helps, of course, that the company also has a strong presence in other categories, including frozen foods, pizza, water and baking ingredients.
For companies that are more closely tied to a product category, like cereal, making changes to the business can be difficult. Nestlé doesn’t have that problem, and as the company readies for the future, more acquisitions and divestitures are all but certain for a company that has been active in that area in recent years.
