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“Grazie.” The board of Sovos Brands, the maker of Rao’s pasta sauce, may have used that term after cutting a deal sell the company to Campbell Soup for $2.7 billion. Campbell’s, based on its goal of growing its sauce business to $1 billion, would naturally answer with the name of its famous brand: “Prego,” or you’re welcome.
The deal will see Campbell’s pay $23 a share for Sovos, a 28% increase over Friday’s closing price of $18. Since the deal was announced on Monday morning, Sovos shares jumped 25% to $22.62 in mid-day trading, while Campbell’s stock price is flat at $44.67 after initially shooting up shortly after market open.
Sovos, which also sells Michael Angelo’s pasta sauces and the yogurt brand Noosa, held a $280 million IPO in September 2021 that was priced $2 to $4 below the originally anticipated range it had filed with the SEC. The company’s most recent financial reporting for the first quarter of 2023 showed $252.8 million in revenue with a net income of $7.8 million. That profit was an improvement over 2022, in which Sovos had a loss of $53.5 million on $878.4 million in revenue. However, the 38.1% sales growth of the Rao’s brand offers some clues as to the value Campbell’s sees in the deal. A spokesperson for Campbell’s told Fortune in an email it plans to work with “all customers to increase points of distribution and household penetration” for Rao’s.
As for Sovos’ Noosa, Campbell’s told Fortune it wasn’t “core to our strategy” but that the strength of the business would allow the company to be “patient as it evaluates strategic alternatives.” Strategic alternatives is often finance-code for a future potential sale.
For Campbell’s, the acquisition accelerates the famed consumer packaged goods company’s plans for a $1 billion sauce business, according to a press release announcing the acquisition. By adding Rao’s brand to its portfolio, Campbell’s will add a premium offering to its tomato sauce lineup, which currently includes Prego branded products.
The Sovos acquisition is among several by Campbell’s since it went on a shopping spree several years ago, buying soup brand Pacific Foods for $700 million in December 2017 and pretzel brand Snyder’s-Lance for $6.1 billion in March 2018.
The deal is in keeping with Campbell’s strategy of competing in just a few macro categories—meals, beverages, and snacks—in just one market—the U.S. In recent years it has shed brands that didn’t fit its focused approach. In 2019, the soup-maker sold the entirety of its international business for a total of $2.5 billion in two separate transactions: Australian brand Arnott went to investment firm KKR for $2.2 billion and the Danish baked goods company Kelsen was purchased by a Ferrero affiliated company for $300 million.
This year, Campbell’s continued shedding assets it deemed non-essential to its strategy. In May, the company sold its Emerald Nuts brand to Flagstone Foods for an undisclosed amount.
When reached for comment, Sovos referred Fortune to the press release announcing the transaction.
