Food Safety Magazine

Business Culture | August/September 2013

After Acquisition: “Chemistry” Benefits Small Food Companies

By Ed Sullivan

After Acquisition:  “Chemistry” Benefits Small Food Companies

The right relationship between newly acquired food companies and their new owners can make it possible for even smaller regional brands to make major leaps.

For many smaller food brands, being acquired by a larger food group is a rite of passage, necessary for growth or even survival. Going through the acquisition process can be somewhat traumatic for smaller companies, which, while evaluating the many considerations of price, timing and structuring of the transaction, may not find the best possible fit.

“A good fit between smaller brands and larger players requires a certain chemistry that will ensure the smaller company can maintain its passion, authenticity and entrepreneurial spirit after the acquisition—factors that are often vital to a prosperous merger,” says Rob Holland, CEO of Flagship Food Group, based in Los Angeles.

Holland acknowledges that product category is often a main consideration in the relationship, although a strong food safety history also is important. For instance, when Snyder’s-Lance acquired Snack Factory, it provided entry into the deli-bakery section of grocery stores, an attractive and growing retail area for snacks.

“There are also many cultural facets to the ‘right’ chemistry,” Holland says. “Those may include keeping the right people in place, maintaining brand identity in the core market and having the necessary resources to achieve synergy between the parent and small or niche company.”

An example of these cultural facets can be found in the performance of 505 Southwestern Chile Sauces, a small, regional brand that Holland’s company purchased a few years ago. The brand was integrated with Treasure Valley Food Group, one of Flagship’s primary units.

“When we acquired the brand, it was mostly sold in Colorado and New Mexico,” explains Ray Gadd, head of marketing for the retail division. “But some of these sauces appeal mainly to taste palates in certain regions of the country,” Gadd explains. “While we intended to grow the brand through distribution and added product, we recognized that it was important to keep the focus on all-natural, authentic ingredients. We are now profiling the taste preferences of the total U.S., which will help us in developing new business strategies and new products that will facilitate expanded distribution of the brand to new geographic areas.”

Gadd says the company’s formulators are creating a new formula for 505 Southwestern, Fiesta Sauce, aimed at the growing nationwide market for southwestern-Hispanic foods. Among other ingredients, this recipe includes the chilies, roasted peppers, black beans and corn.

A Chemistry Lesson
The acquisition of Treasure Valley, which became Flagship’s retail division, itself was a good lesson in acquisition chemistry.

“It was a little over 5 years ago that we decided to put our company on the market, and we had in-process interviews with several prominent companies,” explains Gary Lim, head of Flagship’s retail division (formerly CEO of Treasure Valley). “Several of them focused on numbers and the reasons why things went well or didn’t go well with our plans. We were a bit frustrated by that. Some of the other equity groups that we interviewed did not have any food investments. But even among some that had food investments, the way they functioned as a food group was not very hands-on.”

Lim says the solution for a successful acquisition was for Treasure Valley to find the right relationship with a partner that would provide the needed resources and corporate leadership, and would share a similar vision, particularly on food safety.

“A great deal of the success of a company is based on chemistry,” says Lim. “When you get it right, a lot of good things happen. We felt the same way when we were being acquired. In order for us to continue on the same path, we needed to have the right mix with our partners, just as we had in growing our company from the beginning.”

Lim and the other Treasure Valley owners found that vital chemistry with CREO Capital Partners in Los Angeles, who were developing the Flagship Food Group.

“They were much more interested in what made our company successful since the beginning,” Lim explains. “They shared with us what they had done with the food companies they had taken on, and we learned right away that they were engaged and involved. They were also willing to give us the latitude to make our own decisions and continue in the same direction that had made us successful from the beginning.”

Complementary Resources and Food Safety
In many instances, a newly acquired small brand is dependent on the parent organization for its vital resources, such as packaging, logistics and broker networks.

Treasure Valley depends on Flagship’s centralized packaging division, which handles new package designs or takes current package designs and makes sure they translate well to a packaging substrate material—boxes or bags.

“They help the company identify what is the best packaging substrate for the category, whether for a retail grocery specialty store or big box chain,” Lim explains. “They work with the customer to build a package design profile and then source the packaging production close to the customer’s manufacturing location, providing the benefits of highly effective package design, quick turnaround and very competitive pricing.”

Another area where chemistry can make or break a merger would be the expectations of the smaller company to maintain its standards for food safety and quality after acquisition. Treasure Valley found that Flagship Foods’ SQF Level III U.S. Department of Agriculture-certified chicken processing facility in Georgia met its high standards for safety and excellence. While this is predominantly a foodservice business that supplies some of the nation’s top restaurant chains, it will also produce chicken under Treasure Valley’s Su Ming and TJ Farms brands, which have substantial brand equity.

“We are now taking advantage of the components of the whole Flagship family, and that makes perfect sense,” says Lim. “We spent over $7 million last year on logistics. But by turning that over to our corporate logistics specialists, they will do that portion with the same type of passion that we do on the food side. So it makes sense for them to handle it. In the process, they will be able to save us substantial money.”

“I think it is of great value when a diversified food company can provide an acquisition the infrastructure, the connections and all of the components that are needed,” says Rob Holland. “They often don’t have the scale to have in-house logistics and in-house packaging, or a broker network or national sales team. But if the new parent organization is willing to provide those, it is possible for even smaller regional brands to make major leaps.”  

Ed Sullivan is a Hermosa Beach, CA-based technology writer.

Categories: Management: Best Practices, Risk Assessment