Post Holdings Buying Hearthside Foods Brands

Another organic foods company will bite the dust soon, gobbled down the gullet of Big Cereal.

On Thursday, cereal manufacturer Post Holdings (NYSE: POST  ) announced it has agreed to buy several branded and private labels of organic and natural cereal, granola, and snacks-maker Hearthside Food Solutions for $158 million cash.

Hearthside, owned by private equity firm Wind Point Partners, will sell its portfolio of Golden Temple, Peace Cereal, Sweet Home Farm, and Willamette Valley Granola Company brands, as well as its private label granola business to Post, and integrate them into its own Attune Foods business -- which Post bought in December of last year. In addition, Post will take possession of Hearthside's 135,000-square foot manufacturing facility, and a 30,000-square foot finished goods warehouse, which Post will lease and use for producing the acquired brands.

With its new business producing approximately $70 million in sales, and $17 million to $19 million in earnings before interest, taxes, depreciation, and amortization, Post is paying multiples of about 2.25 times sales, and 8.8x EBITDA. While on the one hand, the cereal concern appears to be paying a premium to its own 1.5x sales valuation, the higher profitability of the acquired business means it's actually paying a lower multiple to EBITDA. Post's own price-to-EBITDA ratio is only 7.2.

Investors appear to be focusing on the latter point of view, with shares of Post Holdings rising modestly in Thursday trading, and now up 3.2% more on Friday. Post shares closed at $47.12 today.


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