Utz Brands, Inc. (NYSE: UTZ) (“Utz” or the “Company”) announced that effective December 14, its subsidiaries Utz Quality Foods, LLC (“UQF”) and Heron Holding Corporation have completed the acquisition of Truco Enterprises (“Truco”), a seller of tortilla chips, salsa and queso under the ON THE BORDER (“OTB”) brand, for a total purchase price of $480 million, subject to a customary post-closing purchase price adjustment. The acquisition includes the ON THE BORDER trademarks in the manufacture, sale, and distribution of snack food products in the United States and certain other international markets.
The transaction represents an acquisition multiple of approximately 9.2x estimated fiscal 2020 Truco Adjusted EBITDA of $50 million excluding estimated synergies, and 8.4x estimated fiscal 2020 Truco Adjusted EBITDA including run-rate cost synergies of at least $5 million, in each case including approximately $20 million in net present value from expected tax assets resulting from the transaction. Utz expects the transaction to be accretive to earnings in 2021 and beyond.
In connection with the transaction, Utz announced that it will redeem all outstanding public warrants and forward purchase warrants (the “Redeemable Warrants”), which if exercised in full by all holders of the Redeemable Warrants will result in approximately $181.3 million of gross proceeds to Utz and an additional 15.8 million shares of Class A Common Stock being issued and outstanding. These proceeds, together with up to $320 million of incremental term loans, are anticipated to be used to repay the bridge debt financing that was used by Utz to fund the purchase price for the Truco acquisition. After giving effect to the expected exercise of all the Redeemable Warrants and the incremental term loans, Utz will have a net leverage ratio of approximately 3.8x 2020 Combined Utz and Truco Adjusted EBITDA including expected Truco run-rate cost synergies of at least $5 million.
The addition of ON THE BORDER to Utz’s portfolio of brands provides the Company with the #3 position in the attractive $6.3 billion retail sales tortilla chip sub-category, which grew 10.5 percent in the 52 weeks ending November 29, 2020. The transaction also strengthens Utz’s national geographic footprint, with the majority of OTB’s sales in Utz’s Expansion and Emerging geographies, and enhances the Company’s presence in the Mass and Club retail channels where OTB has a strong position. Utz plans to use its robust sales, manufacturing, and distribution platform to expand ON THE BORDER tortilla chips, salsa, and queso further into channels in which OTB is under-penetrated, including Grocery and Convenience, and to increase marketing and innovation investments behind the ON THE BORDER brand.