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Sweets Smell of Success

For sale: A 42-year-old chocolate maker in Utah for $2.5 million.
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Fans of the book Charlie and the Chocolate Factory, take note: Mrs. Cavanaugh's Candies, a maker of premium all-natural chocolates such as caramel-smothered pecans and Bavarian-style truffles with mint centers, is for sale. The eponymous Mrs. Cavanaugh, otherwise known as Marie, started the company at her kitchen table in 1964. Today, it's a Utah institution.

This year, the business opened a brand new 26,000-square-foot factory and retail facility, complete with a theater for tourists. The company has seven retail stores in the Salt Lake City area. A buyer can either purchase the factory (asking price: $3 million) or lease it for $13,750 per month, with an option to buy. The factory is currently running at only 20 percent of capacity.

Retail sales account for 79 percent of revenue; wholesale and private label business make up the rest. The chocolate sells for $18.95 per pound on average, a 52 percent markup over cost, qualifying it as a gourmet brand. The staff includes 17 full-timers and 60 to 110 seasonal workers. Marie and her husband, George, are selling because they are now 75 and 80, respectively. Plus, the timing is right. Gourmet candy companies are in demand. Among others, Hershey (NYSE:HSY) and 1-800-Flowers.com (NASDAQ:FLWS) have acquired several such companies of late.

Price: $2.5 million, including equipment (valued at $1.8 million), three trademarks, and Mrs. Cavanaugh's proprietary formularies (a.k.a. recipes). Seller financing is possible.

Price rationale: Well-known candy brands garner high sale prices, and this brand is strong locally. That's why the owners are seeking a higher multiple of cash flow (8.2) than food processors usually fetch (5 to 7).

Pros: Gourmet chocolate sales are rising about 20 percent annually, while the industry has been happily promoting research suggesting that dark chocolate is rich in antioxidants, which are good for the heart.

Cons: Marketing has taken a back seat to facilities expansion recently, with the result that sales have been flat for the past three years. As a result, the factory is not operating even close to capacity.

Outlook: Mrs. Cavanaugh's is a strong regional brand in need of renewed marketing efforts. A candy company looking to crack the Mountain States may find this a delicious opportunity.

Gross
Revenue
EBITDA* Net Income
(% of sales)
2004 $2.2 million $175,297 7.9%
2005 $2.2 million $283,967 12.9%
2006** $2.3 million $301,809 13.1%

*Earnings before interest, taxes, depreciation, and amortization. **Projected

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Direct inquiries to Kathryn Scarmato at Ascend Capital Group: 925-570-3540 or kts@ascendcapitalgroup.com.

Last updated: Feb 1, 2007




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