When Hormel Foods first reached out to Justin Gold — the founder of the fast-growing nut butter spread sporting his name — about buying his company, it didn't take him long to reject their proposal.
"At first I wasn’t really ready," Gold told Food Dive. "They were patient and then they came back [several months later] and they wanted to meet again, and then the more we met with Hormel, the more comfortable I felt.”
Gold started Justin's in 2004 after finding he wanted a good tasting, protein-packed nut butter to fuel his long bike rides. He knew he was on to something when his roommates at the time kept devouring his creations, prompting him to write his name on the jars in his fridge. Soon his nut butters became so popular that friends and family encouraged him to start a business to peddle his spreads.
As the company expanded and new product lines were introduced, the 40-year old entrepreneur —who would have preferred to keep Justin's as an independent entity — grew concerned he didn't have the resources to scale the business, and worried that one food safety or quality misstep could bring down the company Gold spent years building. Increasingly, a partner became a more enticing and realistic option.
Small food and beverage brands such as Justin's have become hot takeover targets by major manufacturers on the hunt for trendy, more nimble upstarts that better resonate with consumers valuing fresh, organic and natural products instead of processed foods.
In the last two years, PepsiCo has snapped up probiotics beverage manufacturer KeVita, Hormel added Justin's, Nestle acquired plant-based food maker Sweet Earth and Flowers Foods purchased organic bread producer Dave's Killer Bread.
Food Dive interviewed founders and employees at these four startups to gain deeper insight into how the deals came about and how the companies have changed since they were taken over. Here's what we learned.
With scores of acquisitions taking place, hiccups or complete failures are inevitable as the acquirer seeks to make changes to the newly purchased business, independent management teams clash with their new bosses, unforeseen occurrences happen in the market or consumer tastes inevitably change.
Campbell Soup, for example, has faced challenges since acquiring the Bolthouse Farms and Garden Fresh Gourmet brands in 2012 and 2015, respectively. Rainy weather in California last year disrupted Bolthouse's fresh carrot supply and the brand was forced to recall nearly 4 million bottles of protein drinks due to possible spoilage that caused some people to get sick. And Garden Fresh has struggled to generate consumer interest beyond its core audience in the Midwest.
“It’s a marriage and you wanted to make sure if you get married to someone, that it’s forever."
Founder of Justin's
Dr Pepper Snapple has struggled to integrate its $1.7 billion purchase of Bai Brands completed in January. After early evidence that it was struggling to integrate the purchase, Dr Pepper dismissed the founder of Bai as CEO and replaced him with a 10-year corporation veteran.
Gold, who has watched as other founders have backed away from their businesses after being purchased only to see the companies flounder, insisted he remain involved with Justin's to help nurture and grow the brand following a deal. Before deciding to accept an offer, he spent weeks interviewing other companies that could have been a good home for his nut butter firm to suss them out.
Once he homed in on Hormel, he talked with the founders of companies that were previously purchased by the Minnesota food giant to see how they felt about their deals in hindsight and whether Hormel executives kept their promises. About 18 months after Hormel first contacted Gold to gauge his interest in a deal, he agreed in May of last year to sell Justin's for $286 million.
“It’s a marriage and you wanted to make sure if you get married to someone, that it’s forever," Gold said. "When I look back, I think we made all the right decisions. Hormel has been great at keeping to their word and keeping us separate and letting us stay a mission-based organization.”
His advice remains the same to other young entrepreneurs who have been approached by large companies interested in a deal: do your research and stay involved with your business even after the transaction closes. Much like other companies gave him advice as he was considering selling his company, Gold has returned the favor, with several smaller firms reaching out to him.
Mike Guanella, who was senior brand manager of Hormel's Skippy peanut butter before taking over as president of Justin's following the acquisition, told Food Dive that Hormel was attracted to the upstart's fast-growing presence in alternative nuts such as hazelnuts and almonds and viewed Justin's as a complement to its existing business.
Following the purchase, Hormel took over key business functions such as logistics, supply chain management, human resources and maintaining food safety and quality, Guanella said. But other practices like sales and marketing, advertising and product development are left in Boulder, Colorado — Justin's headquarters and home town. Justin's is allowed to make many of its key decisions autonomously.
With a low household penetration of 5%, Justin's still has plenty of room to expand its reach into more stores and grow its recognition among shoppers. It's already expanded into confections, with new products that could move the brand into other areas of the grocery store during the next 12 to 24 months, Guanella said.
We were confident we could "take advantage of the scale, of the expertise but at the same time maintain that independence and autonomy," he said. "But the surest way to destroy value is to destroy the things that made you who you were, and that includes keeping the founder engaged and staying true to the mission."
As demand for plant-based food and beverages continues to flourish, the $5 billion category’s fresh, millennial-friendly innovations have spurred takeovers by a number of legacy brands — including one of the world’s leading candy companies. Last month, Nestle acquired Sweet Earth Natural Foods, a maker of frozen vegetarian products ranging from breakfast burritos to meat analogues with names like Hamless Ham and Benevolent Bacon, for an undisclosed amount.
Brian Swette, co-founder and president of Sweet Earth, told Food Dive the confectionery giant wasn’t the first to reach out about a potential deal, but the companies' shared values made it an attractive partner. Swette and his wife Kelly, co-founder and CEO of the company, launched Sweet Earth in 2012 after years of executive experience at companies such as PepsiCo and Burger King to bolster health and sustainability in the food space.
Nestle’s interest in advancing that mission, along with its wealth of industry knowledge, ultimately drew the Swettes away from what Brian calls the “traditional track” of startup development — moving from venture capital to private equity before making an exit or going public.
"What we’re trying to do is take the great inventiveness and marketing of our side and plug it into the powerful systems that they have at Nestle.”
Co-founder and President, Sweet Earth Natural Foods
“[Sweet Earth] has a strong capability in understanding the customer, designing products that fit those customers’ needs and being very inventive,” Swette said. “As you begin to expand your product line and create new technologies, it’s great to have a company that has a long history and a large capability in development, operations. … What we’re trying to do is take the great inventiveness and marketing of our side and plug it into the powerful systems that they have at Nestle.”
The California-based company will remain independent from Nestle, a business strategy Swette said is becoming more prevalent among major manufacturers who snap up upstart trendsetters at an early stage.
“They bought us because they admired us, not because they wanted to change us,” he said. “[Nestle] understands, as I told our employees, that they don’t want to break the new toy they just bought.”
Prior to its deal with Nestle, Sweet Earth sold its products in more than 10,000 stores, including independent grocers and retail heavyweights such as Walmart, Whole Foods, Target and Kroger. Last year, the company posted $25 million in revenue, with that figure expected to climb under Nestle's watch.
“We’re going to focus on working with [Nestle’s] teams on how we can have integration that creates value that’s customer-centric and … the areas of expertise they can help us with,” he said. “It’s a long … very detailed process, but we’re on our way to making that happen.”
In the food and beverage space, few companies have been as aggressive in ramping up their better-for-you roster of brands than PepsiCo. Last fall, the beverage and snack giant announced it would acquire probiotics beverage manufacturer KeVita, a company PepsiCo was already intimately familiar with through a minority stake and distribution deal. KeVita's portfolio of sparkling probiotics, master brew kombucha and vinegar tonics are all centered around the purported health benefits of probiotics.
Indra Nooyi, chairwoman and CEO of PepsiCo, told an audience at the Beverage Forum in Chicago earlier this year there is often an urgency within larger companies to make changes to a smaller company they purchase — such as moving the headquarters or installing their own management — but the risk is that doing so upends what made the startup successful in the first place. So far with KeVita, PepsiCo has been careful not to disrupt the drinks maker as it continues to allow the 12-year old California company to operate independently.
“I know right now they want to keep everything as is, keep the KeVita culture alive," Joel McMinn, the senior manager in charge of the probiotics company's sales strategy for foodservice, small format and drug channels, told Food Dive. “I don’t see anything crazy coming on with KeVita changing."
KeVita has retained its own marketing department and sales representatives, he said. The brand uses its own knowledge of the intricacies of kombucha and the fermentation process to train employees, something McMinn said its larger parent may not be as familiar with. What PepsiCo has added to KeVita are many of the tangibles that smaller upstarts look for when they are taken over: distribution and consumer data.
"They’ve definitely opened up a lot of doors for us. Not saying there isn't any pushback from some of our retailers that don't like the big corporate.”
Senior manager with KeVita
Before the deal, KeVita dominated the natural channel as well as smaller mom-and-pop locations, but under PepsiCo, it has seen its reach grow to include drug and c-stores such as CVS and 7-Eleven as well as colleges, food service establishments and airports. The probiotics company is looking for sales to double this year.
"They’ve definitely opened up a lot of doors for us. Not saying there isn't any pushback from some of our retailers that don't like the big corporate,” McMinn said. “We’re trying to push the needle, and we need the bigger growth opportunities. We might lose out on some of the smaller accounts, but we see where the business is going and we’re just utilizing their partnerships and relationships.”
Dave’s Killer Bread
Best known for its Wonder and Nature’s Own breads, Flowers Foods snapped up Dave’s Killer Bread two years ago for $275 million, giving the Georgia-based company a stake in the rapidly growing organic bread space. The purchase has paid off, helping it gain market share in the bread category.
For Dave’s Killer Bread, which made a name for itself as a company co-founded by an ex-convict that claims one-third of its workforce has a criminal background, the takeover paid immediate dividends for the market-leading organic bread maker.
Paul Sperb, an event manager with Dave’s Killer Bread, told Food Dive the merger allowed the company to take advantage of Flowers’ food trucks, helping increase its distribution. It also was able to gain some organic bakeries — a reprieve for a company that previously was struggling to keep up with demand. And while Dave’s used to flash freeze its product before sending it out, now it goes to stores fresh.
“[Because of the acquisition] we’re able to better manage the product in stores, and make sure it looks the way we want it to look, merchandised the proper way and the shelves are full,” Sperb said.