The Hanover, Pennsylvania-based snack producer said two of its subsidiaries – Utz Quality Foods and Heron Holding – have agreed to acquire the On The Border (OTB) brand owner from Insignia Capital Group for $480m.
Under the terms of the agreement, Truco will become a wholly-owned indirect subsidiary of Utz, with the latter gaining all rights to the OTB trademarks for use in the manufacture, sale and distribution of snack food products in the US and other international markets.
Utz said the purchase will strengthen its US footprint – especially in the tortilla chip space – as well as enhance its presence in the mass and club retail channels where OTB currently holds a strong position.
OTB is currently the #3 brand in the $6.2bn tortilla chip category – the second largest sub-category of salty snacks after potato chips – which saw a 10% rise in retail sales in the 52 weeks ending 4 October 2020.
OTB is also a significant player in the growing $1.5bn salsa sub-category and the #3 brand in the $107m queso sub-category.
Unique position
“This strategic acquisition will make Utz a significant competitor in the tortilla chip sub-category, where OTB holds the number three position, and also provides us with a meaningful position in salsa, queso and dips,” said Dylan Lissette, CEO of Utz.
“In combination with our small but growing premium Tortiyahs! brand, the integration of the On The Border brand will continue to improve Utz’s scale and product diversification, which are important success factors in salty snacks.
“This acquisition strengthens our competitive position, as well as our financial profile. We are confident this transaction will drive long-term value creation for our stockholders and help position us for continued long-term growth.”
Following the integration of the brand into its existing portfolio of snacks – which includes Utz, Zapp’s, Good Health and Boulder Canyon, among others – Utz plans to expand the OTB brand into the grocery and convenience channels.
It also plans to increase marketing and innovation investments behind the brand, which it expects to generate approximately $195m in net sales in fiscal 2020, bringing its total retail sales to around $1.3bn.
“On The Border is now one of the fastest growing tortilla chip brands, and the fastest growing dip brand in the category. Utz will be able to leverage its world class direct store delivery network to help expand our brand into new markets,” added Shane Chambers, CEO of Truco Enterprises.
Financially attractive
Andrew Lazar, MD at Barclays Capital, said the acquisition in line with Utz’s criteria of building scale in the $28bn salty snack category and would bring a better balance to its channel mix.
“We believe the deal is attractive financially,” said Lazar in a statement.
“From a strategic standpoint, we see this deal as a compelling fit as it adds scale in salty snacks and the tortilla chip sub-segment and provides complementary geographic and channel exposure.
“With regard to scale, Utz’s share of salty snacks would move up from 3.9% to 4.7%, pushing the company up a spot to the #3 position and within striking distance of #2.”
Lazar added the company’s share of the tortilla chips space would jump from 0.3% to 3.9%, while its share of the mass channel would rise from 2.6% to 4.1%.