Food for thought: A strategic alternative for Mondelēz
By Brian Guo, Two-Year MBA ’19
Eight investment banking immersion (IBI) presentations were complete—we had one last presentation deck to go. Strategic alternatives week was upon us, and it was time to use the skills and tools we learned throughout the semester. Every team was tasked with making a strategic recommendation to Mondelēz International—a Fortune 500 company with the resources and capabilities to execute almost any creative deal we could conjure up.
During Pitch Me a Deal (PMAD, as we call it), I realized that ambiguity was not an easy space to work in. It also proved to be great preparation for this final pitch. For PMAD, there were a few avenues we could pursue: discuss a bond or equity offering or pitch a potential acquisition. Whatever direction we ultimately chose, I knew we would be able to pitch it, because week-in and week-out my classmates and I had been:
- Deep-diving into specific industries and subsectors
- Blindly building financial models and sifting through company financials
- Formatting and aligning slides for our presentation decks
- Answering and addressing questions from Drew Pascarella, senior lecturer of finance, TAs, and alumni panelists
Mondelēz is an international confectionery, food, and beverage company that originally spun out of Kraft Foods in 2012. They are known for their powerhouse brands including Chips Ahoy!, Oreo, Triscuit, Toblerone, Trident, and many others. Mondelēz is known for acquiring “power” brands plugged into their far-reaching distribution channels. The company serves a snack industry that has seen stagnant growth and a major shift toward healthier and organic snacks. Simultaneously, consumers are snacking more often throughout the day while looking for more nutritional value out of their snacks.
Understanding that larger players in the food industry lean toward acquiring rather than developing brands in-house, most IBI teams looked for attractive targets for Mondelēz to acquire. Ideas ranged from buying more niche brands such as Hostess Brands or Atkins to large companies such as J. M. Smucker. Pitches also incorporated strategies focused on broadening offerings to shifting into pet food distribution.
Our pitch: Hain Celestial carve out
Our team decided to double down on Mondelēz’s core competency: snacks. We felt Mondelēz should tap into the healthy eating trend and begin building out their offerings in this growing segment. Targeting Hain Celestial Group (NASDAQ:HAIN), an organic and natural products company, we focused on their healthy snacks division. The Terra (think colorful veggie chips) and Sensible Portions (think fruit and veggie straws) brands are great anchors to build around given their strong brand recognition and established market position.
Once we had our idea, we needed to build an enticing story and find a feasible way to execute this idea. We listened to earnings calls, dug through financials, and read analyst reports, looking for reasons why HAIN would be willing to sell their snacks division. Activist investors had already stepped in, looking to divest their Protein’s division, and management also claimed to not be the ones capable of scaling HAIN to the next level. We decided to build a sum of the parts valuation, breaking out each segment’s revenue/EBITDA (tea, snacks, personal care, etc.), and then applied segment specific multiples for each division. We found that Hain Celestial would be worth more broken up than as a combined entity. Finally, given how small HAIN’s snacks division was, the company was struggling to negotiate with their distributors (i.e., Walmart), so we felt management would be on board parting with these brands.
Presenting to Mondelēz executives
There was another level of excitement and anxiety around this week’s submission. The deadline was 5 p.m. instead of midnight, and you could see various teams scrambling to put finishing touches on their final deliverable. Ultimately, Drew chose three teams to make their presentation to Mondelēz’s senior Strategy and Corporate Development teams. That Sunday night, while we waited for the final selection, breaking news hit that Mondelēz would be buying Tate’s Bake Shop for $500 million. Talk about a real-world development!
As my classmates presented their proposals to Mondelēz executives, it was evident that they had thoughtfully selected their targets and meticulously modeled out the mechanics of each deal. As the clients asked probing questions, I was proud of my classmates for standing their ground, and addressing each comment and concern that was thrown their way. Several times, the clients took control of the conversation, asking for specific information, but the teams were artfully able to steer the conversation back to their narrative. My classmates made compelling suggestions and received valuable experience presenting to a real client.
The Mondelēz team provided valuable feedback to us all. They could tell we were focused on our models, making sure the numbers were accurate. However, they shared this insight:
“Getting the story right is more important than finding the perfect accretion dilution numbers. If you don’t get the narrative right, correct numbers are a moot point. You build trust and credibility with a client by demonstrating industry knowledge and understanding the client’s specific needs and positioning.”
Ready for our internships thanks to the IBI
We thanked the folks from Mondelēz for taking time out of their chaotic schedules (the day after a deal was announced!) to receive our presentations. It is an experience that better prepared us as we hone our craft. Drew structured the IBI to be rigorous, ensuring that each week we are developing the necessary skills to succeed in our internships.
Are Johnson students ready to hit the street? When our warmup is synthesizing and presenting a strategic alternative to senior members of a Fortune 500’s Strategy and Corporate Development team, I can’t say we didn’t at least get the butterflies out.
As we closed out the semester, my classmates were sentimental about finishing the investment banking immersion. We had high expectations and they were clearly exceeded. However, I gently remind them that 10 weeks of IBI part two would round out our summer internships…
All of us have one goal in mind. Convert. Surpass last year’s record.
There is no doubt in my mind that the Class of 2019 will do that.