Last month, special-purpose acquisition company (SPAC) Collier Creek Holdings (NYSE:CCH) announced it will be acquiring Utz Quality Foods, effectively taking Utz public. SPACs provide an alternative means for a company to go public. Although they have been around for decades, the structure has increased in popularity, because companies that use SPACs can go public faster than via the traditional route of an initial public offering (IPO).
Utz's SPAC IPO
Utz Quality Foods owns a portfolio of snack brands, including Zapp's, Good Health, and its iconic Utz-brand potato chips. The company, founded in 1921, is one of the largest family-owned businesses in the United States. As it approached its 100-year anniversary, the family sought to monetize its business holdings and chose the SPAC route over other options.
Collier Creek's proposed acquisition of Utz values the snack food company at $1.56 billion, an 11.6-times multiple of pro forma 2021 adjusted EBITDA. The deal requires shareholders' approval, but it is expected to be completed in the third quarter of 2020.
Investors can buy shares of Collier Creek today, but those shares will be converted into shares of Utz Quality Foods once the deal is closed.
A growing collection of snack brands
Once public, the plan will be to continue growing the Utz portfolio through internal investments and acquisitions.
The company refers to its core snack food brands as its "power brands," which include its best-known products and constitute approximately 71% of total revenue. The power brands include craft snacks such as Zapp's potato chips, better-for-you brands such as Good Health, and licensing agreements with TGI Friday's and Herdez.
The power brands have strong appeal. However, Utz primarily distributes its products in the U.S. Northeast and Northwest. A key way the company can grow its revenue is by introducing its products to the rest of the country and becoming a national snack food brand. Utz noted that it is currently focused on expanding into the U.S. Southeast in Florida and Texas where there are large population centers. However, one challenge when expanding to these new areas is the need to invest in additional brand advertising to stoke demand.
The company could also find opportunities to grow through acquisition. As a publicly-traded company, Utz will have superior access to the capital markets and can use its stock as a currency in deals. The same team that is leading this deal with Utz will be able to help the company identify and complete other acquisitions in the future.
In 2019, Utz generated over $900 million in revenue, making it the fourth-largest snack food company in the U.S. In normal years, the company expects a growth rate of 3% to 4%. However, the COVID-19 pandemic led to a snack-buying spree that saw Utz grow sales by 23% in the 16-week period ended June 14. This rate of growth might not be sustainable, but Utz does have a plan in place that should enable it to expand in the coming years -- namely its distribution strategy and potential to bring new brands into its portfolio.
Growing from regional to national exposure
Utz's 100-year heritage in the snack food industry has generated a loyal following for its products. Becoming a publicly-traded company will allow Utz to take its business to the next level and give it access to capital it needs to become a truly national brand.
Utz has the potential to follow in the footsteps of industry giants like PepsiCo and can follow a similar growth model driven by a blend of wide distribution and selective acquisitions. As the company strives to meet this potential, it will be an interesting consumer stock to watch in the coming years.