Dive Brief:
- The Massachusetts factory that makes Necco Wafers abruptly closed this week, according to the Boston Globe. The company had recently been purchased at a bankruptcy auction for $17.3 million by Metropoulos family-owned Round Hill Investments. According to the newspaper, the company's CEO told the about 230 employees on Tuesday afternoon that the plant was closing immediately.
- According to a statement Round Hill gave the Boston Globe, the firm that is run by the family synonymous with turning around failing brands was excited to be a part of Necco's resurgence. "After careful engagement and consideration, however, the firm decided to sell the brands to another national confection manufacturer and today announced the closure of the operations in Revere, Massachusetts,” the statement said.
- On July 3, the bankruptcy trustee for Necco filed a complaint against Round Hill, which he said had not paid the final $1 million after the closing.
Dive Insight:
To say that it's been a difficult year for Necco would be an understatement.
The maker of the namesake wafers, conversation hearts and Clark Bars was set to close if it did not find a buyer by May 6. Consumers began carrying a torch for the 171-year-old candy maker, fearing the end of the colorful sweet wafers. Four potential new owners bid on the business, but the sale was far from a simple auction. Spangler Candy had the winning bid, putting up $18.8 million for the company. But after Spangler won the auction, it reportedly told the bankruptcy trustee that it could not complete the sale without a discount on the purchase price. None was given, and the sale went to Round Hill, which submitted the second highest bid.
Round Hill, which is known for reinvigorating failing companies like Hostess, seemed like the perfect buyer to turn this old favorite around. When the purchase was first announced, Round Hill announced it was renaming the company Sweetheart Candy, after its most beloved item. This is a similar strategy to the extremely successful Hostess turnaround, which pivoted on consumers' love for Twinkies, that company's flagship product.
But not much is known about what happened between the day the acquisition was announced and this week. The lawsuit offers a few clues. As the bidding process for Necco came to a close in May, the Food and Drug Administration issued a warning letter to the factory, pointing out problems like a rodent infestation and unsanitary conditions. The letter was simply a request to correct the problems; it did not close the factory, order a recall or levy any fines.
According to the lawsuit filed by the bankruptcy trustee, Round Hill knew all about the FDA warning before bidding on the company, even raising its bid after finding out about it. But yet, the lawsuit states, Round Hill claimed to not know about the warning and used that reasoning to not complete the purchase.
Considering that the warning letter received a lot of attention from the national media, it's difficult to see how Round Hill wouldn't have known about the problems in the factory. Even so, the Metropoulos family has been known to use its capital to help turn around facilities. After it acquired Hostess, the family realized its bakeries were in dire need of an overhaul and spent $110 million on renovations.
Perhaps the reason for the hasty closure actually did have to do with facilities. Necco no longer owned its plant — the land and plant were sold in 2017 for $54.6 million. Necco, which built that plant in 2003, had an agreement to remain there through the end of August. According to the Revere Journal, after the sale, the factory was expected to relocate. The land the factory sits on, which was purchased by a general contractor and a construction firm, had recently been rezoned. Last year, the mayor of Revere, Massachusetts, said the land could now be “home to 21st century industries such as robotics, biotech and advanced manufacturing,” lucrative options that could squeeze out a candy company. Necco has had various factories in the past, so it makes sense that the current plant would be shutting its doors right about now, regardless of the owner.
But Round Hill claims to have gone ahead and resold the company, although it has not said who the new owner is. Perhaps it is Spangler, which likely had a plan for a Necco acquisition. It's unknown if the Ohio-based company has the plant space for the company's namesake wafers and conversation hearts, but it maybe could enter into a seasonal rotation with the Mexico plant that makes Spangler's candy canes for the Christmas season.
Maybe the buyer is someone else altogether, who perhaps didn't submit a bid at the bankruptcy auction. It's safe to bet that it is a manufacturer, considering Necco has few other assets.