Utz Brands, Celsius, Freshpet could be next M&A targets after Kellanova – analyst

Utz Brands (NYSE:UTZ), Celsius Holdings (NASDAQ:CELH) and Freshpet may be potential acquisition candidates after Mars agreed to buy Kellanova (K) for $35 billion on Wednesday, according to a Piper Sandler analyst.

Hershey (HSY) may be motivated to add more salty snacks to better compete with a combined Kellanova/Mars and Utz (UTZ) would be a logical candidate, Piper Sandler analyst Michael Lavery wrote in a note on Thursday.

“While we do not know what (if any) salty snacks businesses HSY may have on its radar, we have long considered salty snacks pure-play UTZ to be an attractive potential addition to a larger company’s portfolio,” Lavery wrote.

Freshpet (NASDAQ:FRPT) is also an attractive potential takeover target for any pet food company, though Mars, which has a huge pet business, likely has “negligible” interest in another deal “anytime soon,” according to Lavery.

Freshpet (FRPT) may be appealing to a company that doesn’t currently have a pet food division, similar to how General Mills (GIS) entered the category by acquiring Blue Buffalo in 2018.

Celsius (CELH) is another attractive acquisition candidate, though Pepsi (PEP), which is ~8.5% stake, is the only “realistic” buyer, Piper Sandler’s Lavery wrote. The pullback in Celsius shares, which have fallen 26% this year, could make Pepsi more interested.

While the Mars deal for Kellanova (K) is huge at $35 billion, it’s unlikely to start another round of consolidation in the sector, Stifel analyst Matthew E. Smith wrote in a note on Wednesday.

“We do not expect the Mars + Kellanova transaction to kick-off a round of large-scale consolidation across the food industry,” Smith wrote. “Companies remain focused on investing to drive revenue growth despite the weak volume environment, and we anticipate M&A to be an outlet to drive improved growth rather than scale benefits.”

Smith added though that the relatively high deal multiple for Kellanova (K) won’t deter other deals from happening in the industry.

“The Kellanova deal multiple stands at the high-end of the range we anticipated, but we do not view the deal multiple as a level that would cause M&A activity in the industry to freeze up with unreasonable valuation expectations going forward,” Stifel’s Smith added.

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