Private equity firm Onex Corp (ONEX.TO) is nearing a deal to acquire Ferrara Candy Co, potentially valuing one of the largest U.S. makers of non-chocolate confectionary at close to $1.3 billion, including debt, people familiar with the matter said.
The deal would be a big bet for the Canadian buyout firm on Ferrara's increasing clout and pricing power in the seasonal candy market. It would give it ownership of a bounty of iconic brands, including Fruit Stripe gum and Now & Later chews.
Onex has prevailed in an auction for Ferrara and is now negotiating final terms with its owner, private equity firm L Catterton, the people said on Friday, cautioning that it is still possible that negotiations break down without a deal.
The sources asked not to be identified because the negotiations are confidential. L Catterton declined to comment, while Ferrara and Onex did not respond to requests for comment.
The Oakbrook Terrace, Illinois-based company's origins date back to 1908 when Salvatore Ferrara started selling Italian pastries and sugar coated candy almonds. It was sold to private equity firm L Catterton in 2012, after the founder's son, Nello Ferrara, died.
Under L Catterton's ownership, Ferrara merged with another of the buyout firm's portfolio companies, Farley's & Sathers Candy company. Farley's and Sathers had been an acquirer of many candy brands from larger candy companies, including sugar coated jelly brand Chuckles from Hershey Co (HSY.N).
L Catterton also brought in new executive teams and focused on innovation, including new flavors and packaging design. Cinnamon-flavored Red Hots, for example, now come in flavors such as Kick’n Mango Lime and Dark Chocolate Red Hots.
Ferrara competes with other candy companies that include snickers Mars Inc, whose products include M&Ms and Snickers, and Hershey Co (HSY.N), whose offerings include its namesake chocolate kisses and Reese's Pieces.
The broader confectionary industry has struggled in recent years, as consumer preference have shifted toward healthier alternatives.
Still, the sector is attractive to private equity firms because it is less affected by economic downturns and appeals to consumers of all ages. Because of its consistency, it remains an important category for retailers, giving brand-owners negotiating power.
Net sales for Ferrara for the twelve months ending March 31 were approximately $880 million, according to credit ratings agency Moody's Investors Service Inc.
(Reporting by Lauren Hirsch and Greg Roumeliotis in New York; Editing by Bernard Orr)