B&G Foods' Acquire-and-Exploit Good Brands Strategy Pays Off

While “late-nighting” it back to NYC from AUTM in Las Vegas, I had a conversation with a seasoned traveler next to me.  His comments were not at all flattering about Continental Airlines, and I will sum them up with his words:  “They are getting their wish and becoming more like United every day.” I smiled, thought about the folks at Mission Impossible, wondering if they would do an industry look at the reputation of the airlines (especially now that – even with additional fees – they will be getting their profits squeezed unmercifully with the surge in the price of oil) and see if there is a correlation between a (perhaps disappearing) sliding brand value at Continental Airlines after the merger with United.

Ironically, Direct TV was blasting in front of me with the zany antics of Jim Cramer who was all but orgasmic over the numbers reported by B&G Foods. (In their own words, B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico.) Their stock, a Cramer pick, jumped nearly 20% yesterday (here’swhy), extraordinary by anyone’s standards, and the company president, David Wenner, was on the Mad Money show with Jim. Numbers are numbers, and when you beat street expectations by over 30%, things happen.  But the interview was an excellent one, as Mr. Wenner’s rehearsed explanation of cause and effect was an IP value discussion.

He said, and I am paraphrasing, it’s all about branding.  Brands are critical, and far to expensive to build yourself.  Our strategy is to acquire brands, after researching their meaning and impact in the marketplace, and exploit that value.

Of course, as acquiring IP was the triumphant strategy, I wanted to see if the balance sheet bore out that strategy, and acquired IP represents over 40% of the assets reflected, considerably higher than goodwill. Trying to find a sample financial reporting allocation of IP for one of their recent acquisitions will be a future project. For now, it's clear B&G is a company that recognizes the value of a brand (even to the extent they admit a good brand is “too expensive” to build anymore), does the requisite research to ensure the target brand resonates with reputation metrics they can exploit, and builds out their food product line under cover of that brand.  Great story.