You just sold Applegate Farms LLC to Hormel Foods Corp for about $775 million in a deal that closed on July 13. Hormel said Applegate will add 7-to-8 cents a share in 2016 earnings and help its growth targets. Why did you decide to embark on a sale at this point?
Applegate Farms is a pioneer in the natural, organic, and antibiotic-free meat category. The company had achieved its objectives to ”change the meat we eat” (the focus of their marketing campaign). Applegate had tripled in size to almost $350 million in sales during our involvement and it was time for the company to partner with a strategic acquirer for its next stage of growth.
Swander Pace first backed Applegate Farms in 2009. It’s now billed as the No. 1 brand of organic and all-natural deli meats, hot dogs and sausages in the natural foods arena. With the strong interest in that space by rival firms, how did your firm nail down the deal?
Given SPC’s twenty year history in organic and natural foods, we met founder Stephen McDonnell in the early years of Applegate’s development. We kept a dialog going for more than 10 years as we watched Applegate grow. Eventually, when Stephen was looking to add a private equity partner to help take the business to the next level, Swander Pace Capital (SPC) was a great fit to be his partner. We have worked with families and entrepreneurs throughout our history and the company was at the right growth inflection point to bring us in.
Any other portfolio companies that fit your natural and organic foods given your firm’s focus on this sector?
We are particularly excited about Renew Life Formulas Inc, the leader in the natural probiotic (microbes that improve body functions) and digestive health category, as well as, Kicking Horse Coffee, the largest organic and fair trade coffee manufacturer in Canada. Both companies are highly on trend in fast growing sub-segments of the natural/organic sector.
Any recent acquisitions that seem particularly exciting to your LPs?
We are broadly focused across the entire consumer products spectrum. Outside of the natural/organic space, we have made recent acquisitions in infant products with Aden & Anais, which sells swaddling blankets used by celebrities such as Uma Thurman and Beyoncé; automotive fluids in Canada with Recochem Inc, a maker of coolants and antifreeze; and over-the-counter personal care with Clarion Brands. While these are very diverse categories, each of these companies are leaders in their respective niches and have similar growth opportunities.
Any thoughts you could share about dealing with the high deal price environment nowadays?
We have been making private equity investments in consumer products for nearly 20 years and have seen many cycles. We are certainly at a high point in the cycle, driven by strategic acquirers looking for growth (such as Hormel’s purchase of Applegate) and the availability of debt, but at the same time we are still finding interesting opportunities. With higher purchase prices, you have to have an angle beyond financial structuring to drive equity value. We love being sector focused and having the operational expertise in-house to drive distribution, marketing, and manufacturing best practices.
Edited by Steve Gelsi