Better For You: The Simply Good Foods Company Acquires OWYN

Source: Simply Good on LinkedIn

You know what I miss most about being a kid? I always thought that it was the innocence and having nothing in the world to worry about, but in writing this blog, I finally realized what I actually miss the most: My metabolism and the ability to eat whatever I wanted without guilt. Nowadays, I can’t even remember the last time I bought snacks and drinks from the grocery store without checking the nutrition label first. Most of the time, I’m appalled by the overwhelming amounts of added sugar or saturated fats from a lot of my favorite cereals, chips, pastries, and even the supposedly healthy fruit smoothies and nut bars. But more recently, there have been more occasions where I’ve been pleasantly surprised by how “healthy” many of the snack and drink options have become. Low/zero Sugar drinks, baked chips, and even protein cereal, there seems to be a shift in consumer trends where more and more brands are innovating better-for-you products with healthier alternatives that still taste great.

On June 13th, 2024, The Simply Good Foods Company (Simply Good Foods) made a significant strategic move by acquiring Only What You Need (OWYN), a rapidly growing plant-based protein shake brand. Valued at $280 million, this acquisition not only expands Simply Good Foods’ portfolio but also places it at the forefront of two of the fastest-growing segments in the consumer retail landscape: plant-based nutrition and ready-to-drink (RTD) protein shakes. This transaction signals the company's commitment to diversifying its offerings while capitalizing on emerging trends in consumer preferences towards health, sustainability, and convenience.

Company Overviews:

Source: Nosh.com

The Simply Good Foods Company

The Simply Good Foods Company (Nasdaq: SMPL) is a Denver-based consumer-packaged food and beverage company that specializes in branded nutritional foods and snacking products. The company was formed through the merger of Conyers Park Acquisition Corp. and Atkins Nutritionals, Inc. in 2017. Simply Good Foods is best known for its Atkins™ and Quest™ brands, which offer a variety of high-protein, low-carbohydrate products. These include protein bars, ready-to-drink (RTD) protein shakes, and sweet and salty snacks, all aimed at consumers following low-carb or ketogenic diets.

Simply Good Foods has established itself as a leader in the "better-for-you" snacking market, with products that appeal to health-conscious consumers who prioritize high protein, low sugar, and low carbohydrate content. The company’s strategy has been to expand its presence in the fast-growing nutritional snacking space through both organic growth and strategic acquisitions. The acquisition of Quest Nutrition in 2019 was a major step in this strategy, as it expanded the company’s reach into a broader demographic of health-focused consumers.

The company's success is driven by its commitment to innovation and consumer-centric products, particularly in the growing health and wellness sector. Its focus on protein-forward, low-sugar snacks resonates with a wide range of consumers, from those following specific diets to those simply looking for healthier snack options. With its strong market position and established distribution channels across traditional retail, natural markets, and eCommerce, Simply Good Foods is poised for continued growth in the coming years.

In terms of financial performance, Simply Good Foods reported strong performance in the first half of 2024, reflecting the continued growth of its core brands. In the third quarter earnings report of FY 2024 reported last week on June 27th, the company posted net sales of $334.8 million, a 3.1% increase compared to $324.8 million in the same quarter of the previous year. Net income for the quarter rose to $41.3 million, up from $35.4 million in 2023, resulting in an EPS of $0.41, compared to $0.35 in the previous year​.

For the full fiscal year, Simply Good Foods reaffirmed its net sales outlook, projecting growth of around 4-6%, in line with its long-term targets. Gross profit for the year-to-date through Q3 2024 increased to $365.6 million, representing a 9.8% rise from the previous year, driven by lower ingredient and packaging costs, which helped boost gross margins by 220 basis points​.

Source: Fruitful Yield

Only What You Need (OWYN)

Only What You Need, founded in 2017 and headquartered in New York City, is a fast-growing brand in the plant-based, ready-to-drink (RTD) protein shake market. The company’s mission is to provide clean, allergen-free, plant-based nutrition to consumers who prioritize health, sustainability, and transparency. OWYN’s product lineup includes a range of protein shakes that are free from common allergens like dairy, gluten, and soy, as well as artificial ingredients. The company’s focus on clean-label, plant-based ingredients has helped it carve out a niche in the highly competitive RTD protein market.

OWYN's products are available in several varieties, including its flagship 20g Protein Shakes, Pro Elite 32g Protein Shakes, Complete Nutrition Shakes, Protein Powders, and Doubleshot Protein Coffee Shakes. These products appeal to a wide range of consumers, including those with dietary restrictions or allergies, as well as those following plant-based diets or simply seeking healthier alternatives to traditional protein shakes. OWYN's commitment to transparency in labeling and ingredient sourcing resonates particularly well with millennials and Gen Z consumers, who are more inclined to prioritize sustainability and ethical consumption in their purchasing decisions.

Financially, OWYN has experienced rapid growth since its inception, becoming one of the fastest-growing brands in the RTD protein shake category. By 2024, the company is expected to achieve net sales of approximately $120 million, a testament to its strong brand appeal and market presence​. OWYN’s success has been fueled by its strong relationships with both traditional and natural food retailers, as well as its profitable and expanding eCommerce business.

OWYN's rapid ascent in the market has not gone unnoticed, making it a prime acquisition target for larger companies looking to capitalize on the growing demand for plant-based, allergen-free products. The acquisition by Simply Good Foods allows OWYN to scale its operations, expand its distribution network, and continue innovating within the plant-based protein space. Under the leadership of Simply Good Foods, OWYN is well-positioned to grow further and reach an even broader audience of health-conscious consumers.

Industry Overview:

The global protein supplements market, valued at USD 26.10 billion in 2023, is projected to grow to USD 28.15 billion in 2024 and USD 55.32 billion by 2032, with a CAGR of 8.81%. In the U.S., the market is expected to reach USD 22.58 billion by 2032. This growth is driven by increasing purchasing power parity (PPP) and a rise in demand for ready-to-drink (RTD) products and dried fruit snacks, which reflect changing lifestyles. Bodybuilders, elite athletes, and casual exercisers are major consumers of protein bars, RTD shakes, and powders, boosting demand across various market segments. Popular brands in this space, such as Optimum Nutrition, Quest Nutrition, and MusclePharm, are contributing to market expansion.

The market saw increased demand during the early stages of the COVID-19 pandemic as people turned to protein supplements to support their immune health while staying at home. This trend further highlighted the convenience and nutritional benefits of protein supplements.

One key trend is the growing popularity of plant-based protein products, spurred by rising concerns about environmental sustainability and animal welfare. Plant-based proteins, such as soy, pea, and rice, are becoming mainstream alternatives due to their health benefits, like promoting smoother digestion and supporting gut health. Companies like Optimum Nutrition have responded by launching new plant-based products, including their Gold Standard 100% Plant Protein powder, which caters to the growing vegan and health-conscious markets. The trend towards personalized nutrition is also driving demand, as consumers increasingly seek products tailored to their specific dietary needs.

Source: Fortune Business Insights

The sports nutrition market is another significant driver of growth, with athletes and fitness enthusiasts consuming sports beverages, supplements, and foods designed to enhance performance, muscle growth, and overall health. Technological advancements, such as nano-encapsulation and microencapsulation, are improving the delivery and effectiveness of these products. Innovations in naturally-derived ingredients, combined with increasing consumer awareness of health and nutrition, are further fueling the penetration of protein supplements in the market.

However, volatility in raw material prices, particularly for soybean and milk, poses challenges for the industry. These fluctuations, caused by political and economic factors, affect the cost of producing whey and casein proteins, essential ingredients for many protein supplements. Additionally, milk prices are subject to seasonal variations, which impact the supply chain.

In terms of product segments, protein powders remain dominant, accounting for 55.86% of market revenue in 2022. The widespread availability of these products through online channels and mass distribution networks, along with strong demand from fitness enthusiasts, contributes to their leading position. RTD products and protein bars also play significant roles in the market’s expansion. Supermarkets and hypermarkets continue to hold the largest share of the distribution channels due to the convenience they offer consumers, though competition from online and direct-to-consumer (DTC) channels is expected to increase over time.

Deal Rationale:

The acquisition of OWYN adds an attractive high-protein ready-to-drink (RTD) shake brand to The Simply Good Foods Company’s portfolio, uniquely positioned within the fast-growing nutritional snacking segment. OWYN distinguishes itself with its plant-based, allergen-free products, catering to consumers seeking clean, sustainable nutrition solutions. Its passionate core consumer base, combined with growing mainstream appeal, positions OWYN as a strong player in the health-conscious market. The acquisition allows Simply Good Foods to tap into the consumer demand for great-tasting, protein-rich RTD shakes, aligning with current trends for plant-based diets and allergen-free options.

OWYN also presents a growth-oriented, scalable brand that complements Simply Good Foods’ existing portfolio. By adding OWYN’s plant-based RTD shakes, Simply Good Foods further diversifies its offerings and strengthens its presence in the rapidly expanding RTD segment. OWYN targets a consumer demographic that is complementary to Simply Good Foods’ existing base, allowing the company to expand its reach. The similarities between the two companies’ go-to-market models create an opportunity for operational efficiencies, enhanced brand awareness, and increased distribution.

Additionally, the acquisition provides opportunities for product enhancements and innovation, leveraging the combined R&D capabilities of both companies. OWYN’s integration into Simply Good Foods is expected to drive significant cost synergies through improved general and administrative (G&A) efficiencies and supply chain optimizations.

Deal Structure:

Simply Good Foods funded the $280 million acquisition of OWYN through a combination of cash and incremental borrowings. Specifically, the company used $50 million in cash from its balance sheet and secured financing through an incremental $250 million term loan. The total term loan, which includes an existing $240 million balance, will have a variable interest rate tied to the Secured Overnight Financing Rate (SOFR), plus a credit spread adjustment and a margin of 2.50%. The company expects to gradually pay down this debt throughout the remainder of fiscal year 2024, targeting a net debt-to-adjusted EBITDA ratio of around 1.25x by the end of the fiscal year.

The acquisition price of $280 million represents a multiple of approximately 2.3x estimated net sales and 13.3x estimated adjusted EBITDA, including anticipated synergies. These synergies will come from integrating OWYN’s operations into Simply Good Foods' existing structure, particularly in areas such as general and administrative expenses, as well as supply chain efficiencies. While OWYN’s contribution is expected to be neutral to Simply Good Foods’ adjusted diluted earnings per share in the year following the transaction, excluding one-time integration costs, the company anticipates strong long-term financial benefits once the integration is complete and synergies are fully realized.

Centerview Partners LLC was the buy-side financial advisor to The Simply Good Foods Company, with legal counsel being provided by Fried, Frank, Harris, Shriver & Jacobson LLP. Houlihan Lokey was the sell-side financial advisor for OWYN, while Greenberg Traurig, LLP served as its legal counsel.

Deal Discussion:

The acquisition of OWYN is part of a broader trend of consolidation in the consumer retail sector. According to a mid-year M&A outlook from PwC, despite M&A activity in consumer markets having more or less been steadily declining since a peak in 2021, deal volume is expected to accelerate in the second half of 2024, driven by a combination of portfolio optimization, consolidation, and adjacent acquisitions. Large companies are increasingly using M&A as a strategy to diversify their portfolios, enhance operational efficiencies, and tap into new markets.

Simply Good Foods’ acquisition of OWYN fits squarely within this trend. By acquiring a smaller, fast-growing brand that caters to a different consumer demographic, Simply Good Foods is able to expand its product offerings and tap into the growing plant-based nutrition market. This strategy of acquiring complementary brands is becoming increasingly common as companies look to stay ahead of consumer preferences and capitalize on emerging trends.

Moreover, the deal is indicative of a broader trend of adjacent acquisitions in the consumer market. Many large companies are using M&A to diversify into new product categories or expand their reach into adjacent markets. For example, in February 2024, Walmart acquired VIZIO Holding Corp., a manufacturer of audio and video equipment, to capitalize on a new revenue stream. Similarly, Simply Good Foods’ acquisition of OWYN allows the company to expand its reach into the plant-based, high-protein segment of the RTD market, which is adjacent to its core business of high-protein, low-carb snacks and beverages.

Source: LSEG and PWC analysis

Bear or Bull?

When all is said and done, it just leaves us with the most important thing— is this deal going to be successful and maximize shareholder value?

Bear Case:
While the plant-based protein and RTD markets present massive growth potential, they are also fiercely competitive.

PepsiCo, for instance, has aggressively entered the plant-based beverage market through its partnership with Beyond Meat and the development of plant-based snacks and beverages under the Plant-Based Platform. In 2021, PepsiCo launched its Evolve plant-based protein shake, a direct competitor to OWYN, which offers similar high-protein, plant-based, allergen-free credentials. PepsiCo’s extensive reach and well-established relationships with global retailers give it a massive advantage in terms of scale, distribution, and marketing resources.

Nestlé has also made bold moves in the plant-based segment, investing heavily in both food and beverage offerings. Its Garden Gourmet brand focuses on plant-based alternatives, while Nesquik introduced its own plant-based protein drinks. Nestlé also acquired Orgain, a popular brand known for its organic, plant-based protein shakes. Nestlé’s deep R&D resources allow it to rapidly innovate and respond to changing consumer preferences, making it harder for smaller brands like OWYN to compete in product development alone.

Bull Case:
Nevertheless, I do believe Simply Good Foods is making a smart, strategic move by acquiring OWYN, a fast-growing plant-based brand with mainstream appeal. The global trends favoring plant-based diets, clean-label products, and ready-to-drink protein shakes give this acquisition a significant growth runway. With Simply Good Foods’ established distribution network, OWYN is likely to scale faster and reach new consumers. The synergies between the two companies—shared focus on health-conscious, high-protein products and complementary marketing strategies—will enhance operational efficiencies. In the long run, OWYN’s presence in the plant-based segment will allow Simply Good Foods to diversify its revenue streams and mitigate risks associated with over-reliance on its current brands. If the integration goes smoothly, the synergies (particularly in G&A and supply chain) should result in significant cost savings, boosting profitability and long-term shareholder value. Ultimately, the deal leans more bullish due to the solid industry trends supporting plant-based protein and the consumer shift toward sustainable, allergen-free products. Simply Good Foods has the resources and infrastructure to elevate OWYN’s market presence while also benefiting from an expanded, diversified portfolio.

Final Verdict: Bull