Amplify Snacks Buys Premium Snack Company Tyrrells for US$391 Million

10 Aug 2016 --- Amplify Snack Brands, Inc. and Crisps Topco Limited and Subsidiaries (“Tyrrells”) have executed a definitive agreement under which Amplify will acquire Tyrrells, an international, market-leading and rapidly growing premium Better-For-You snack food business. The transaction has been unanimously approved by Amplify’s board of directors.

Under the terms of the £300 million transaction (US$391 million), Tyrrells’ current owner Investcorp and members of the Tyrrells management team will receive approximately £278 million in cash and approximately 2.1 million shares of Amplify’s common stock. Amplify expects to close the transaction by the end of the third quarter of calendar 2016. Amplify expects that this acquisition will be accretive to both the Company’s 2017 and 2018 diluted earnings per share.

Founded in 2002 and headquartered in Herefordshire, England, Tyrrells is a diversified, international snacking company that manufactures and markets iconic, market-leading brands including Tyrrells Potato Crisps, Tyrrells branded Vegetable Crisps, Tyrrells Poshcorn, Tyrrells Nibbles, Tyrrells Tortillas, in the United Kingdom, Europe and many other international markets; Yarra Valley, manufacturer of Thomas Chipman and The Wholesome Food Company brands in Australia; and Aroma Snacks, manufacturer of Lisa’s kettle chips in Germany. Importantly, the product characteristics and flavor profiles of these on-trend premium brands align with Amplify’s Better-For-You snacking strategy.

With distribution across a highly diverse set of international sales channels, Tyrrells generated approximately $111 million in net sales for the last twelve months (“LTM”) ended June 30, 2016, and achieved a compound annual net sales growth rate of 23% from fiscal year 2013 to fiscal year 2016. During the last twelve months ended June 30, 2016, Tyrrells generated approximately £18.3 in management presented EBITDA, as adjusted through due diligence in connection with the transaction. Tyrrells is the #2 player in the hand-cooked premium chip market in the UK and the #1 player in France, with existing and growing penetration in other key Western European markets. Tyrrells has a strong presence across the potato chip, vegetable chip, corn chip and popcorn product categories and is supported by five international manufacturing facilities in England, Germany, and Australia.

“Together, Amplify and Tyrrells will partner to create a truly unique international Better-For-You snack food leader that can continue to drive robust future revenue and earnings growth,” said Tom Ennis, Amplify’s President and Chief Executive Officer. “We believe that the combination with Tyrrells will create significant long-term value for all of our stakeholders. Similar to Amplify, Tyrrells has a strong entrepreneurial spirit and successful track record of transforming categories and creating growth brands. We welcome David Milner and his team, and look forward to the opportunity to increase our operating scale, international reach, and product and brand diversity as we capture revenue synergies. We plan to capitalize on each company’s market leadership and sales forces to drive higher revenue growth than either company could independently accomplish.”

David Milner, Chief Executive Officer of Tyrrells commented, “We’re excited to join Amplify’s Better-For-You snack food platform as we combine our highly complementary businesses and brands to build an even stronger company for future international success. We were lucky enough to be able to choose our long-term partner and this partnership provides a significant opportunity to accelerate sales growth for Tyrrells’ brands in the United States, as well as the scope for Amplify’s brands in the international marketplace. Building upon the strength of each of our respective customer relationships and leveraging Tyrrells’ manufacturing capabilities, we shall be entering new territories as well as broadening our reach in existing markets.”

The transaction will create a large and diversified pure-play international Better-For-You snack food company. Amplify believes the combination will provide the following strategic and financial benefits:

Diversifies and Expands Better-For-You Branded Product Offerings: The combination of Amplify’s existing portfolio of brands including SkinnyPop, Paqui and Oatmega, with the leading international brands of Tyrrells, Thomas Chipman, Wholesome Goodness, and Lisa’s creates a combined international company with approximately $317 million in pro forma LTM net sales ended June 30, 2016. The acquisition creates a company with meaningful brand, product category, retail channel and geographic diversity. Following the closing of the transaction, Amplify’s North American footprint would represent approximately 63% of net sales, the United Kingdom would represent approximately 23% of net sales, and the Rest of the World would represent approximately 14% of net sales, based on pro forma net sales for the last 12 months ended June 30, 2016 for both companies.

Accelerated International Expansion and Whitespace Realization: The acquisition of Tyrrells allows Amplify to more rapidly realize the opportunity provided by global Better-for-You snacking trends. Complementary distribution channels and sales teams provide actionable whitespace opportunities and potential to accelerate revenue growth for both Tyrrells’ and Amplify’s current brand portfolios. Minimal product and business overlap create two-way cross-sell opportunities to help accelerate entry into new markets and broaden reach in existing markets. Amplify will benefit from the presence of an international sales team with strong customer relationships in over 40 countries, while Tyrrells’ brands can leverage Amplify’s outstanding US-focused capabilities.

Increased Scale Provides Significant Future Benefits: In addition to benefiting from greater operating scale and increased procurement savings, Tyrrells’ outstanding manufacturing expertise and international capabilities will provide future cost benefits to the Company. Beyond these cost benefits, the combined company expects to realize additional benefits of scale via sharing of best practices, leveraging established infrastructure and strengthening retail partnerships.

Addition of Experienced Executive Team: The transaction will add a talented group of executives, with strong international consumer packaged goods backgrounds and a proven track record of growth, to the core Amplify team. Upon closing of the transaction, Tyrrells’ management team will remain in place with David Milner continuing as President International for Amplify, reflecting his commitment and belief in the future success of the combined company. Other key members of Tyrrells’ senior management team will join Amplify to help manage the international brands and manufacturing operations.

Under the terms of the transaction agreement, Tyrrells will become a wholly-owned subsidiary of Amplify. The transaction is valued at £300 million, comprising of approximately £278 million in cash and approximately 2.1 million shares of Amplify’s common stock issued to Investcorp and members of Tyrrells management team, valued at £22 million. Amplify plans to finance the cash portion of this transaction with debt and has secured financing commitments from Jefferies Finance LLC, Credit Suisse AG, Credit Suisse (USA) LLC, and Goldman Sachs Bank USA. Pro forma for the transaction, net leverage is expected to be approximately 5.7x.3 Amplify remains committed to maintaining long-term net leverage in the 4.0x to 4.5x range and expects to be well within that leverage range, via organic growth and subsequent free cash generation, by the end of 2017. The transaction is expected to close by the end of the third quarter of calendar 2016, subject to customary closing conditions including approval by regulators.

The news came as Amplify reported that net sales increased 26.4% to $59.9 million compared to $47.4 million for the three months ended June 30, 2015. The increase in net sales reflects strong growth of the SkinnyPop brand, new distribution of the Paqui brand, and the addition of the Oatmega brand which the Company acquired in late April 2016.

Gross profit was $32.5 million, or 54.4% of net sales, compared to $26.7 million, or 56.4% of net sales for the three months ended June 30, 2015. The decrease in gross margin percentage for the three months ended June 30, 2016 was driven by a higher level of trade promotional activity and increased contribution of the Paqui and Oatmega brands which have a lower gross margin profile than SkinnyPop. Gross margin of 54.4% for the quarter represents a 210 basis point sequential increase from 52.3% for the three months ended March 31, 2016, driven by lower trade promotional spend and partially offset by the increased contribution of the Paqui and Oatmega brands which have a lower gross margin profile than SkinnyPop.

GAAP SG&A was $14.3 million compared to $17.0 million for the second quarter ended June 30, 2015. GAAP net income increased $5.2 million to $8.8 million, or $0.12 per fully diluted share, compared to net income of $3.6 million, or $0.05 per fully diluted share, for the three months ended June 30, 2015. Adjusted net income, which is a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, was $11.3 million, or $0.15 per fully diluted share, compared to adjusted net income of $10.0 million for the three months ended June 30, 2015, or $0.13 per fully diluted share.

Adjusted EBITDA, which is a non-GAAP financial measure used by the Company that makes certain adjustments to net income calculated under GAAP, increased 15.5% to $21.7 million from $18.8 million for the three months ended June 30, 2015, primarily reflecting higher net sales and gross profit, and partially offset by higher Adjusted SG&A. Adjusted SG&A, which is a non-GAAP financial measure used by the Company that makes certain adjustments to SG&A calculated under GAAP, was $10.9 million, compared to Adjusted SG&A of $7.9 million for the three months ended June 30, 2015. The increase in Adjusted SG&A was primarily driven by increased consumer marketing activities to drive brand awareness and customer trial and new costs associated with operating as a public company including investments in infrastructure and personnel. As a percentage of net sales, Adjusted EBITDA was 36.3% compared to 39.7% in the three months ended June 30, 2015.

“Our brand momentum continued at a strong pace resulting in another quarter of record revenue and profitability,” said Tom Ennis, Amplify’s President and Chief Executive Officer. “Our second quarter performance was fueled by strong SkinnyPop sales growth, the further rollout of Paqui, and contribution from our recent acquisition of Oatmega. As we enter the second half of 2016, we believe we are well positioned to execute on our growth strategy and enhance shareholder value.”

Mr. Ennis continued, “Amplify was created to be a market leading platform in the Better-For-You snacking category and we are excited to welcome the addition of Tyrrells as we leverage our unique competencies to partner with and grow best-in-class Better-For-You brands. Tyrrells represents a highly strategic, rapidly growing and sizeable acquisition for Amplify and greatly expands our snacking categories and international presence.”

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