Mario Gabelli's Potential Takeover Candidate (Part 2)

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the 2013 Barron’s Roundtable, Mario Gabelli, a successful investment manager, has shared his ideas about several businesses that are potential takeover candidates.  In my previous article I wrote about Patterson Companies, a distributor of dental, veterinary, and rehabilitation products. In this article I will look closer at Boulder Brands (NASDAQ: BDBD), a functional food marketer, to see whether or not investors should follow Gabelli into this company.

Business Snapshot

Boulder Brands, previously known as Smart Balance, is the marketer of functional food products in North America under several brands such as Smart Balance, Earth Balance, Bestlife, Glutino and Udi’s. The largest revenue contributor was the Smart Balance segment, accounting for 77% of the total revenue in 2011. The company’s largest customer was Wal-Mart Stores, representing around 18% of the total sales. The manufacturing of its products is mainly outsourced to third parties. It is operating only one manufacturing facility in Quebec for gluten-free products.

Boulder Brands’ Three Strategies

Going forward, Boulder Brands has three main strategies. First is to introduce new products and expand distribution in the natural segment under three brands: Udi’s, Glutino, and Earth Balance. The company estimated that the natural segment would account for 53% of the total revenue, while Smart Balance’s revenue share would decrease to 47% in 2013. Second, while expanding the growing natural segment, Boulder Brands would maintain steady profit in Smart Balance segment. The company has come up with innovative butter products that help block cholesterol absorption and maintain heart health. The third strategy is to promote health & wellness vision by acquiring brands that emanate from the natural channel. Overall, Boulder Brands brings health & wellness solutions to consumers. Smart Balance is for heart health, Udi’s and Glutino are for gluten-free diet, Earth Balance is for plant-based diet, and Bestlife is for weight management.

The CEO has a Great Record

Mario Gabelli liked Stephen Hughes, the company’s Chairman and CEO. In 1997, he was appointed to be the CEO of Celestial Seasonings when the company was quite small, with only a $70 million market cap. After that, he restructured the company’s brand portfolio, innovated new products, generated a better return from existing products, better spent in marketing and shook up the distribution channel mix. In 2000, the Hain Food Group acquired Celestial Seasonings for $390 million to create The Hain Celestial Group (NASDAQ: HAIN). For the last two years, Hughes has been leading Boulder Brands into gluten-free market by acquiring Glutino and Udi’s.

Peers Comparison

At the current trading price of $13.60 per share, the total market cap is nearly $808.5 million. It has a quite high valuation at 28.76x EV/EBITDA. Hain Celestial is a much larger company, with $2.67 billion in market cap. The market is valuing Hain at 16.25x EV/EBITDA. WhiteWave Foods (NYSE: WWAV), the spinoff of Dean Foods, has the cheapest valuation among the three. With the total market cap of $2.9 billion, the market is valuing WhiteWave at 12.88x EV/EBITDA. Despite the difficult economic environment in Europe, WhiteWave still had double-digit growth in both plant-based food & beverage and coffee creamer segments. Among the three Boulder Brands is the most leveraged with 0.7x D/E, while both WhiteWave and Hain have 0.4x debt-equity ratio. In terms of operating performance, Hain had the highest LTM operating margin at 10.5%. The operating margin of Boulder Brands is the lowest at 7.24%, while WhiteWave had 8.25% operating margin.

Foolish Takeaway

CEO Stephen Hughes has a great record of turning around food companies by restructuring the brand portfolio. He has been doing the right thing for Boulder Brands with the acquisition of gluten-free food makers. With the fast growing gluten-free brands portfolio, I personally think that Boulder Brands is a decent potential takeover candidate.


hoangquocanh has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial and WhiteWave Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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