M&A Insights: Earthbound and Bolthouse Farms Transactions
On April 11th, Danone and Taylor Farms announced separately that Taylor Farms had successfully completed the acquisition of Danone’s Earthbound Farms for an undisclosed amount. Also in early April, Campbell’s announced it had reached a deal to sell Bolthouse Farms. In this blog article, we explore the deal dynamics of both produce Industry transactions.
Earthbound Farms was part of Danone’s acquisition of WhiteWave Foods which was completed in April of 2017. WhiteWave acquired Earthbound from Kainos Capital, in early 2014 for approximately $600 million as part of its strategy to grow its organic fresh food business. As reported by WhiteWave in their annual report, sales of the Earthbound Farms business unit in 2014 were approximately $575 million. However, by late 2015, WhiteWave began to experience problems in the business unit with supply chain and customer issues, triggered by a change in their ERP system and other operational issues related to business processes. By 2018, topline sales had shrunk to about $400 million according to Danone. The sale of Earthbound Farms to Taylor Farms was part of Danone’s portfolio and capital allocation rationalization plan.
On April 17, 2019, Danone’s CEO, Emmanuel Faber, reported to shareholders in their quarterly earnings call that Earthbound had made good progress in operational improvements over the previous two years, however, its topline sales were negatively impacted by the romaine lettuce E. Coli outbreaks. Alain Oberhuber, an Analyst at Germany’s MainFirst Bank AG, who covers Danone, estimated that Earthbound had a negative organic growth rate of around -9% in Q4 of 2018 and was still losing money. Other insiders have indicated that the business had made tremendous progress over the last 12-18 months in gaining back customer confidence, and at its worst, the business had negative operating profits of more than $50 million.
When Danone announced the decision to sell the business last June, many expected the business to trade for approximately $500 million but by December, news reports of a difficult process emerged. Danone announced that it expects to incur a $100 million non-recurring loss in the first half of 2019 related to the transaction and we expect the deal was consummated at well below the asking price.
Taylor Farms organic packaged salad business is estimated to have at least $100 million in revenue and when combined with the Earthbound Farms brand, it will be the undisputed leader in the organic packaged salad business in the U.S. The other major players in this space include: Fresh Express (Chiquita), Dole, Organic Girl, Green Giant and Eat Smart (Apio). Earthbound will become part of Taylor Farms Retail Group led by Mark Campion. According to an unnamed source at the New York Post, Earthbound had about $70 million in EBITDA a few short years ago. It will be interesting to watch whether Taylor can reinvigorate the business and build on the recent operational improvements given its core competencies in growing, processing and marketing packaged salad and other organic produce.
Also earlier in April, Campbell’s announced it had signed a definitive agreement for the sale of Bolthouse Farms to Butterfly Equity, a Los Angeles-based private Equity firm, for $510 million. Butterfly Equity focuses on food and agribusiness investments and has former Bolthouse CEO, Jeff Dunn, as an Operating Partner. Once the deal is completed, Dunn is planning to resume his role as CEO at Bolthouse.
Campbell’s bought the business in 2012 for $1.55 billion and has written down the investment in its Fresh Food business unit four times since its original investment in 2012 according to Reuters. Like WhiteWave and Danone, Campbell’s struggled with many of the operational challenges of running a vertically integrated business in the sector, such as weather issues and product spoilage. Insiders have indicated that the business was saddled with mandated processes and practices that may be suitable for a large shelf-stable CPG company, but adds unnecessary costs and stymies innovation for a business like Bolthouse.
In both the Taylor-Earthbound and Bolthouse-Butterfly deals, we anticipate the future for the brands, the employees, the customers, and other industry stakeholders looks much brighter in the hands of the new owners.