The Simply Good Foods Company (Nasdaq: SMPL) (“Simply Good Foods”), a developer, marketer and seller of branded nutritional foods and snacking products, and Quest Nutrition, LLC (“Quest”), a healthy lifestyle food company, have announced that the companies have entered into a definitive agreement under which Simply Good Foods will acquire Quest for $1.0 billion in cash, or approximately $870 million net of tax benefits, on a cash-free and debt-free basis. The transaction is structured as the purchase by a subsidiary of Simply Good Foods of 100% of the equity of each of Voyage Holdings, LLC and VMG Quest Blocker, Inc. (together, the “Target”) from the founders of Quest and other equity holders of the Target.

Quest is a fast-growing active lifestyle brand with a highly engaged consumer base. Its on-trend philosophy focuses on creating snacks that contain high protein levels with minimal sugars and net carbohydrates. The pairing of Atkins and Quest unites well-established brands with attractive growth profiles that results in a leading nutritional snacking company with combined estimated net sales of over $800 million and strong operating margins. This combination positions Simply Good Foods to continue to benefit from consumer mega trends related to healthy eating and better nutrition as the great-tasting Atkins and Quest products offer consumers a smart and convenient approach to healthier snacking.

“The acquisition of Quest strengthens Simply Good Foods’ position within the nutritional snacking category by expanding our portfolio of brands and product offerings while also providing us with greater consumer and channel diversification,” said Joseph E. Scalzo, president and chief executive officer of Simply Good Foods. “This combination delivers on our strategy to become a broader nutritional snacking company that offers consumers a broad range of brands and products that satisfy their nutritional needs. We also believe that our collective brands will benefit from increased cross-selling and marketing opportunities, as well as enhanced go-to-market strategies that will drive meaningful net sales and earnings growth. Quest is supported by an innovative spirit and dedicated employees committed to supporting consumers’ healthy lifestyles, and both Quest and our existing brands will benefit from sharing best practices and insights in marketing, distribution and supply chain management to deliver on our commitment to customers and consumers. Upon the closing of the transaction we look forward to working with Dave Ritterbush, president and chief executive officer of Quest, and his team, and welcoming Dave to the Simply Good Foods Board of Directors.” 

“We are excited to join the Simply Good Foods family and I’m personally pleased to be joining the Simply Good Foods Board of Directors upon closing, as we collectively drive the next stage of Quest’s growth,” said Dave Ritterbush, president and CEO of Quest Nutrition. “The Simply Good Foods team has a strong track record in building leading nutrition brands and I feel that Quest will fit perfectly in their overall mission. As part of Simply Good Foods, Quest will benefit from the combination of two great organizations focused on providing consumers with healthier food choices. I’m incredibly proud of everything that Quest and our team has accomplished and excited for the next phase of our growth by joining a larger, more diverse nutritional snacking company.”

Compelling Strategic and Financial Benefits

• Highly attractive, complementary portfolio of nutritional snacking brands. Quest’s products - primarily, bars, cookies, chips and pizza - compete in many of the attractive, fast growing sub-segments within the nutritional snacking category. Quest has an extremely loyal following and favorable demographic profile with strong appeal among consumers 18-44 years old with almost no overlap with the Atkins consumer. 
   
• Scalable, growth-oriented platform. Given Quest’s growth trajectory, innovation pipeline and identified cost synergies, we believe there is financial flexibility to continue investing in the Quest business and expand margins that should, over time, be relatively similar to Simply Good Foods.
   
• Enhances innovative culture to deliver on shared mission. This transaction will enable Simply Good Foods to benefit from Quest’s effectiveness within e-commerce, social platforms, specialty and other non-tracked distribution channels, while Quest will benefit from Simply Good Foods’ expertise in building distribution in FDM (food/drug/mass) channels and growing brand awareness via broad reach media. 
   
• Achievable synergies. The transaction delivers on key growth criteria while achieving an estimated $20 million in cost synergies over three years by leveraging efficiencies of scale.
   
• Financial overview. The strategic acquisition of Quest, which has net sales and Adjusted EBITDA² of about $345¹ million and $50¹ million, respectively, provides Simply Good Foods with additional scale and is complementary to the Company’s long-term net sales and adjusted EBITDA growth algorithm. Additionally, the combination is expected to be accretive to cash EPS in year one.

Terms and Financing 
Under the terms of the agreement, the $1.0 billion purchase price will be paid in cash and represents a purchase price multiple of approximately 14.3x¹ Adjusted EBITDA,²including identified annual run-rate synergies of approximately $20 million expected to be achieved over the next three years. The net purchase price is about $870 million including tax benefits. This represents a net purchase price multiple of approximately 12.4¹ Adjusted EBITDA,² including synergies.

Simply Good Foods intends to finance the transaction by using approximately $225 million of cash on its balance sheet as well as committed financing from Barclays, Credit Suisse and Goldman Sachs. The Company also anticipates issuing equity and, given the expected solid cash flow generation of the combined businesses, anticipates a net debt to Adjusted EBITDA multiple of 4.0x or less by fiscal year-end August 2020.

The transaction has been approved with unanimous support by the Board of Directors of Simply Good Foods, its purchasing subsidiary and by the governing bodies of the Target and is expected to close by the end of 2019, subject to satisfaction of customary closing conditions and receipt of regulatory clearance.

____________________________________
¹Estimated twelve months ended December 31, 2019, as provided by Quest management
²Adjusted EBITDA is a non-GAAP financial measure.