Hain Celestial is having a tough time selling itself, according to the New York Post. The reasons include too many brands and SKUs and recent accounting and financial problems.
The Post reported that sources said none of the company's brands are big enough to attract a buyer willing to pay what Hain is asking. Nestle has recently been in talks to acquire it, but only if Hain sells its antibiotic-free chicken and turkey division first — a segment that accounted for 18% of the company's sales for the year ended June 30.
Engaged Capital took a 9.9% stake in Hain this past summer to help reinvigorate the company's top-line growth and bring its margins more in line with its peers. The investor is believed to be pushing for a sale.
Hain has long been identified as a potential takeover target, but its erratic performance and an audit of accounting discrepancies — it announced in June it would not revise any of its previous financial statements — have cast doubt on its future.
After his investment last year, Glenn Welling, founder, principal and chief investment officer of Engaged Capital, succeeded in getting himself and five other new members appointed to the 11-member board. Welling likely favors a sale of Hain, which has acquired more than 55 brands, including BluePrint juice, Celestial Seasonings teas and Garden of Eatin' snacks, since it was founded in 1993.
In its most recent earnings report, Hain not only showed an increase in sales and profits, but its operating income margin rose from 4% in the first quarter a year ago to 5.6% — a sign it is operating its business more efficiently. The margin improvement could be particularly attractive to a buyer.
Besides Nestle, major food manufacturers mentioned as potentially interested in buying Hain, or some of its brands, include PepsiCo, Campbell Soup, Hormel Foods, General Mills, Kraft Heinz and Unilever, according to TheStreet.
If one buyer isn't interested in the whole company, CNBC said it's possible multiple firms could get involved. Unilever might want its personal care business — which includes Alba Botanica and Avalon Organics — while Tyson Foods or Pilgrim's Pride might be interested in its Empire Kosher Poultry and Plainville Farms.
CPGs, which have struggled as consumers shun processed items in favor of fresher, organic and natural products, could bulk up their offerings in the space by purchasing the company. Many firms have already made moves to improve their brand lineup, and a purchase of Hain represents such an opportunity.
Still, as the New York Post noted, Hain has a hodgepodge of mostly smaller brands that would take significant time and money for a bigger player to nurture and grow — depriving the buyer of the initial bang most companies look for in a deal. It's a far cry from four years ago when General Mills purchased the well-known Annie's, which boasts lines of mac and cheese, cereal and yogurt, for $820 million.
Several large companies have recently acquired smaller manufacturers in the natural and organic space. Campbell Soup announced in July it would spend $700 million to purchase natural and organic brand Pacific Foods of Oregon. And Conagra Brands recently announced it would acquire Angie's Artisan treats, the maker of Angie's Boomchickapop popcorn.
With a market cap of $4.5 billion, Hain would be an acquisition these and other much larger food and beverage manufacturers could easy digest — if they were convinced it made sense and if experienced management could take over from Hain CEO Irwin Simon, who founded the company.
Ultimately, time may be on Hain's side. That's because the new law lowering corporate taxes from 35% to 21% could make a breakup much cheaper to accomplish. Simon has guided the company from the beginning, and he may not want to sell, especially for a cheap price. According to the Post, he said he didn't build the company to sell it — but to change the way people eat. Despite that claim, in the end, it may be greenbacks and not plates of organic greens that wield the most influence over Hain's future.