Local natural, organic brands fare variously in M&A

Steve Savage is no stranger to acquisitions in the health-conscious natural and organic sector; a company he started 31 years ago has been acquired four times. But when a big corporation gobbles up a home-grown brand with lots of brand loyalty, what happens to those brands — and their fans?

“Every acquisition is different,” said Savage, founder and chief executive of Boulder-based 1908 Brands. “Sometimes you’re left alone, and sometimes you’re like Boulder Brands, which no longer exists.”

Boulder Brands, maker of gluten-free products, was acquired in 2016 by Pinnacle Foods, which two years later was bought for $10.9 billion by Conagra Brands.

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Recent years have seen a spate of such activity in Boulder’s iconic natural and organic economy.

Pennsylvania-based multinational chocolatier The Hershey Co. is responsible for two of the highest-profile acquisitions of Boulder-based companies, absorbing snack-bar maker One Brands for $397 million in 2019 and then last June completing the $425 million purchase of Lily’s Sweets LLC, whose Stevia-sweetened chocolate bars, peanut butter cups, baking chips and chocolate-covered nuts were seen as a good fit for Hershey’s “Better For You” low-sugar portfolio.

Hershey had shed two other premium snack makers, but in a second-quarter earnings call in early August, Michele Buck, its president, CEO and board chair, said she was more confident of success with Lily’s because it’s a scale business, “close to that $100 million in size, whereas Scharffen Berger and DAGOBA were much smaller, in the $30 million range.”

One Brands CEO Peter Burns told BizWest two years ago that Hershey’s takeover of the company would allow it to develop new products such as confections and beverages and reach consumers in additional retail outlets through Hershey’s formidable sales and distribution networks.

Like Savage, Burns is no stranger to acquisitions. He headed Gunbarrel-based tea maker Celestial Seasonings, which merged in 2000 with natural-food purveyor The Hain Food Group. And as president and CEO of Boulder-based Justin’s Nut Butter LLC, he led the company through its $286 million sale to Hormel Foods Corp. in 2016. 

Justin Gold, who founded Justin’s in 2004, told BizWest two years ago that he “didn’t build the company just so I could sell it. I built the company so I could do something special.” He praised Hormel for keeping true to its promise to “let Justin’s keep being Justin’s,” keep it in Boulder and help it innovate and expand.

Savage cheers the idea of a giant purchaser letting a small company do what it does best. Eco-Products, the company he co-founded in 1990, was sold to Waddington North America in 2012. “Waddington left it alone,” he said. “Then Waddigton got bought by Jardin, Jardin got bought by Newell, then Newell was bought by Novalex. During that whole nine-year evolution, Eco-Products has been purchased four times and they just left it alone. It’s still completely intact.”

Acquisitions have their upsides and downsides, Savage said. 

“In general, when companies buy companies, you cut half your expenses, improve your manufacturing capabilities, and improve your margins by 30%. Those are the big things,” he said. “Other little things are cross-marketing opportunities; when you buy a company like Eco-Products, you can now add some of the other environmental products you had in your portfolio that were struggling by themselves and add them. You want to try to keep the culture in the brand and the customer loyalty but leverage your manufacturing and other cost savings.”

Too much of the time, however, “employee morale goes down,” he said. “Most of the employees leave or get let go, and the culture changes. Most employees join a small business because they want to be part of something special, and when a big company buys a small brand, too often you lose all that.

“One reason why it’s great Eco-Products was kept intact is they still have a small-company culture but they have the resources of being owned by somebody big — which is smart and unique,” Savage said. “Eco-Products was such a leader in its category that all four acquirers didn’t want to mess it up.”

Eco-Products originally provided items made from recycled materials to businesses in central Colorado, then shifted its focus to office supplies, restaurant equipment, janitorial products and environmental building materials. From 2006 to 2008 it began focusing on compostable, disposable food-service packaging using a new polylactic acid-based resin.

“That’s when we transformed the company,” he said. “We basically discontinued everything else we did. I didn’t want the cleaning products to die so I moved them to this new company, 1908 Brands.”

He wants 1908 Brands’ Boulder Clean product line to keep its integrity because the customer-base for green-themed products is knowledgeable. He called out some of its competitors for being acquired by companies that test on animals, use toxic ingredients, or use packaging that looks environmentally friendly but isn’t. “In reality, they’re just adding crap to a plastic bottle, and I think most consumers can see through that.”

Besides the Boulder Clean product line, 1908 Brands also includes Pasta Jay’s sauces and Schultz’s Gourmet cooking and barbecue sauces. Does Savage think Ragu might be interested in acquiring Pasta Jay’s, or that KC Masterpiece might like to snag Schultz’s?

Not likely, he said. “They’re not big enough.”