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Smucker’s Appetite for Growth

As Client Focus celebrates its 10th anniversary, we get caught up with one of William Blair & Company’s most iconic—and mouth-watering—clients.

In a December 2002 article titled “The ‘Peanut Butter & Jelly’ Deal,” Client Focus highlighted The J.M. Smucker Company’s $731 million acquisition of Procter & Gamble’s Jif and Crisco brands.

“The combination of these three American icon brands (Smucker’s, Jif, and Crisco) … creates a new and exciting company with leading positions in three significant food categories, excellent earnings power, and a strong financial position to pursue new product development and acquisition opportunities,” the article said.

Over the past decade, the Orrville, Ohio-based company has more than made good on that assessment.

Highlighted by its $840 million acquisition of International Multifoods in 2004 and the blockbuster $3.4 billion acquisition of Folgers in 2008, Smucker has built on its heritage of producing the world’s finest jams and preserves and created tremendous value for shareholders in the process.

In addition to the world-famous fruit spreads that the company has been producing since founder Jerome Monroe Smucker started selling apple butter in 1897, the company now boasts a full portfolio of food products. The Smucker family of brands now includes nearly 40 brands across North America, including Jif, Crisco, Robin Hood, Folgers, Café Bustelo, R. W. Knudsen Family, Santa Cruz Organic, Pillsbury, and Dunkin’ Donuts.

“Smucker’s has always been an iconic brand, but the Jif and Crisco transaction was truly a transformational acquisition for the company,” said Brent Smith, who is the head of consumer M&A for William Blair. Smith, along with William Blair CEO John Ettelson and bankers from throughout the firm’s corporate finance and debt teams, has advised Smucker on 11 transactions since 1999.

Barry Dunaway, senior vice president and chief administrative officer for Smucker, said the family’s decision to go forward with the transaction illustrated its belief in the company’s potential.

“Tim and Richard Smucker [the company’s chairman of the board and CEO, respectively, and great-grandsons of the company’s founder] felt the company could do so much more in the industry and that the employees were capable of managing a larger, more complex company,” Dunaway said. “The Jif and Crisco transaction really got the flywheel turning.”

That wheel has continued to turn vigorously since then. The International Multifoods transaction in 2004 allowed Smucker to acquire leading Canadian brands such as Bick’s pickles and relish and Robin Hood flour and baking mixes.

Smucker’s growth and expansion reached another inflection point in 2008 when the company acquired another iconic brand from Procter & Gamble: Folgers, the No. 1 U.S. retail coffee brand. In the four years since the Folgers transaction, Smucker’s sales have more than doubled to $5.5 billion in 2012, and coffee accounted for 48% of total sales in 2012.

“The Folgers transaction took us to the next level,” Dunaway said.

Innovation in Flavor and Finance

As Smucker looks to continue its impressive trajectory, Dunaway said growth will continue to come from the growth of its core business, strategic acquisitions, and innovation. Smucker launched 60 new products in 2012 alone and plans to launch up to 100 more in 2013.

The company’s innovation, however, is not limited to new products you’ll be seeing in grocery stores. For both the Jif-Crisco and Folgers transactions, Smucker (with the help of William Blair’s investment bankers) executed the mergers using a relatively seldom-used and complex structure called a Reverse Morris Trust. The Reverse Morris Trust allowed Smucker to acquire the brands from Procter & Gamble while minimizing the tax implications for P&G and its shareholders.

“Despite their traditional heritage, Smucker is an innovative acquirer on the cutting edge of transaction structure,” Smith said. He added that Smucker is the only acquirer to have used the Reverse Morris Trust structure for more than one transaction.

The Folgers transaction was also noteworthy in that it involved the issuance of $400 million of debt by Smucker in the midst of the credit crisis. William Blair’s Michael Ward, who has advised Smucker on multiple debt transactions, said the $400 million issuance of senior unsecured notes was one of the first private placements to price following the virtual shutdown of credit markets the week of September 15, 2008.

While the company’s focus remains predominately on North American markets, Smucker recently made a minority investment in a family-run oats producer in China. Dunaway said this venture will give Smucker valuable insight into Chinese consumers.

Focused on Long-Term Growth

Smucker’s strong, steady growth and financial performance since 2001 is doubly impressive considering it occurred over a 12-year period marked by two severe market crashes and heightened volatility.

Dunaway said the company’s consistent performance is the result of management’s relentless focus on long-term results. “It’s really about the long term and what’s best for all of our constituents: consumers, customers, employees, suppliers, communities, and shareholders,” he said.

Smucker’s unique culture is evident in the way it treats its more than 4,800 employees. Fortune magazine has consistently recognized Smucker as one of the “100 Best Companies to Work For.” “Relationships are fundamental to how we do business,” Dunaway said.

Although William Blair’s first transaction with Smucker was not until 1999, the relationship between the two companies dates to the 1980s. Paul Smucker, Jerome’s grandson, met former William Blair CEO Ned Jannotta through their work together with the W.K. Kellogg Foundation Trust.

“It has been a privilege to work with The J.M. Smucker Company over the years,” said William Blair CEO John Ettelson. “It is a great company made up of even better people, and we are thrilled that we have been able to help support their growth.”

One should not assume that the listed client approves or disapproves of William Blair & Company or the advisory services provided.

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