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Shearer’s snacks on private label trend to fund CD&R dividend
William Hoffman
•3 min read
With grocery prices remaining stubbornly high, many consumers are turning to private-label brands like the ones made by Shearer’s Foods.
In order to tap into this growing private-label trend, CD&Rbought the salty snacks and cookies maker Shearer’s from Ontario Teachers' Pension Plan Board late last year.
Now, the sponsor is capitalizing on that growth with a debt-funded dividend payment.
Deutsche Bank led the $450m SUNs due 2032 that were upsized by $50m and priced at 9.625% today in from talk of 9.75%–10%.
Investors said the company’s 60/40 split of private label to co-packaging was an attractive selling point. Right now it can take advantage of consumer preferences for cheaper store-brand products but they also have co-packaging deals with big national brands such as Frito-Lay to fall back on.
“They have some counter-cyclical balance because right now private labels caught a big bid relative to the inflationary backdrop,” one retail analyst said. “When that swings back — which it always does — they’ve got the co-pack, so they'll be able to benefit from both sides.”
Shearer’s business mix (via OM)
Additionally, under CD&R’s management the company has unlocked some new manufacturing efficiencies that are driving greater EBITDA generation, the analyst said.
Shearer’s net leverage fell by a turn to 4.5x since CD&R took over in December and pro forma adjusted EBITDA is up to $376m from adjusted EBITDA of $292m for the full-year period ended in September 2023 (the last full-year reported period under OTPPB management).
The new notes will erase that deleveraging progress bringing net debt to pro forma adjusted EBITDA back to 5.6x (check out 9fin’s Credit QuickTake for more detail on the business).
Still, investors are getting some high-yielding debt to fund the sponsor dividend.
The new SUNs offer as much as 300bps of additional yield over the company’s $500m SSNs due 2031 that priced at 7.875% earlier this year. Those SSNs were last indicated at 104 for a YTM of around 7%.
Shearer’s new SUNs are similarly wide to the $1.22bn TLB due 2031 that priced at S+400bps and was last indicated at a price above par.
Shearer’s SSNs performing well since they priced in February (via 9fin)
Some investors had concerns over the aggressiveness of the docs, which included an allowance for drop-down transactions and Serta up tiering, the analyst said. The situation was also complicated by a perceived typo in docs concerning the consolidated total leverage ratio, other buysiders said.
The company held a call with investors today to smooth over the details and get the deal over the finish line with an upsize and tighter pricing. But it highlighted the growing frustrations investors are feeling with loose docs, even if it’s not always possible to push back effectively when demand is outstripping supply.
“The pace of LMEs has accelerated over the last several quarters and people are saying enough is enough,” the analyst said.
Deutsche and CD&R declined to comment. Shearer’s could not be reached for comment.
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