Campbell Soup Company (CPB) has acquired Sovos Brands, Inc. (SOVO)—the parent company of brands such as Rao's pasta sauces, Noosa Yoghurt and Italian frozen food Michael Angelo's—for $2🌃.7 billion

What's The Deal?

The deal was closed at $23 per share in cash, approximately $5 above Sovos stock's closing price of $18.02 on Friday, August 4. That places Sovos's enterprise value at approximately $2.7 billion, a 92% increase from the company's 2021 IPO price. The all-cash purchase will be financed by issuing new debt with a projected leverage of 4.7x.

Sovos Brands also issued its second quarter 2023 earnings report on Monday. Organic net sales growth of 16.3% for the quarter was largely driven by increasing sales volume and price growth. Adjusted EBITDA grew 36.9% year-over-year while marketing and R&D expenditures increased by a combined 35.6%.

Campbell Hungry For Rao's?

Rao's, which accounted for 69% of Sovos's net sales in FY2022, grew organic sales by 35% compared to the previous year. The jarred pasta sauce maker was likely a key motivation in the acquisition, which "over delivers [on Campbell's] stated strategic goal of building a $1 billion sauces business by entering the ultra-distinctive pasta sauce market."

Rao’s isn't just a sauce brand: Consumption of its frozen, soup, and pasta offerings was up 38.0% year-over-year in the second quarter. Campbell's sees the brand's "low-penetration" into adjacent categories (frozen meals, dry pasta and ready-to-serve soups) as a growth opportunity given the brand's momentum. That being said, Rao's jarred sauce is not only popular but considered fairly high quality for a ready-to-eat product, receiving accolades from Bon Appetit among others.

Sovos stock rose about 25% in early trading Monday, while shares of Campbell's fell roughly 2%. Sovos shares have gained about 57% since the beginning of the year, though Campbell's shares have lost close to 21%.