Church & Dwight Scoops Up Hero to Bolster Growth but Challenging Dynamics Taking a Toll; Shares Rich

As a means to jumpstart growth, no-moat Church & Dwight is adding Hero (a leader in the acne patch category) and its Mighty Patch brand to the mix for $630 million, a deal that is set to close in the fourth quarter. While we see the strategic merit of the tie-up (with the brand slated to chalk up midteens sales growth next year as Church leverages its network within the personal care realm to expand Hero’s distribution), the purchase price is difficult to swallow, with a trailing 12-month price/sales multiple of around 5.5 times. Over the last several years, Church has salivated for deals with rich price tags (including WaterPik, Flawless, Zicam, and TheraBreath). Despite this, we aren’t altering our standard capital allocation rating at this juncture given the small size (at around 2% of sales) and complementary nature of the product set.