Agro BioSciences’ microbial tech drew big buyer

Third Wave Bioactives spins off

Research intern Jack Mouradian adds different concentrations of Third Wave antimicrobial product to bacteria in a well diffusion assay.

When Wauwatosa-based Agro BioSciences Inc. was acquired for $75 million May 1, it had only been in business four years.

The company was purchased by Ewing, N.J.-based Church & Dwight Co. Inc., which owns major household brands like Arm & Hammer, OxiClean and Trojan. Agro will be integrated with the company’s Arm & Hammer Animal Nutrition division, and its former owners stand to gain another $25 million based on its future performance. It is one of the largest exits in Wisconsin history.

Research intern Jack Mouradian adds different concentrations of Third Wave antimicrobial product to bacteria in a well diffusion assay.

What attracted the Fortune 1000 manufacturer to the quiet biotechnology startup? Microbial terroirs.

A chance meeting last year at the International Production & Processing Expo, a trade show for the livestock industry, led to the acquisition.

“I happen to just be walking the trade hall as I usually do and I came across this sign that said ‘microbial terroir’ and I said, ‘What the heck is that?’” said Scott Druker, general manager of Arm & Hammer Animal Nutrition.

Microbial terroirs are microscopic elements that influence the characteristics of a food, such as its health benefits, taste, aroma and consistency. Agro BioSciences has developed proprietary terroir strains that can be added to livestock feed to help boost production or prevent illness. And it offers customized analysis of customers’ flocks or herds to determine which strains would benefit their animals.

“What brought our interest to the technology was just the whole approach to the probiotic space,” Druker said. “Their approach is one of first providing an insight on a customer level—these are the specific microbial challenges that you’re facing in your situation, whether it’s the quality of a food product or the health of an animal or the food safety challenges that you’re facing. They’re providing an insight that really customers didn’t have before.”

“Say you’re a poultry producer and you have a set of broilers. These are the chickens that you’re going to grow up and in six weeks, they’re going to be chicken nuggets,” he said. “There’s a bunch of different things that can impact how well a bird is converting its feed to body weight,” from health to feed quality to weather. “What we’re able to do is come in and sample the environment, from the food to the litter to the feed ingredients going in, and basically do microbial work and get a complete picture of the microbial challenges that are in that environment.”

It’s not just the approach, but also the talented employees and their technology that attracted Arm & Hammer, Druker said.

“What the folks at Agro had done over the years is build an exceptional database of probiotic strains and then understand the genomic functionality of each of these strains,” he said. “That group has had a successful track record for over two decades in this kind of business. Although Agro BioSciences was a new entity, the people involved have a lot of experience in this field.”

The leader of that group is president Tom Rehberger, who previously co-founded, built and sold Pewaukee-based Agtech Products Inc., which also made microbiological animal products, for $42 million in 2008. Rehberger went on to found Agro BioSciences in 2013, and by the time of the acquisition had already grown it to $11 million in revenue and about 36 employees.

Agro’s operations will remain in southeastern Wisconsin, the global company’s only Wisconsin location, Druker said. On May 16, Agro completed a planned move to a 20,000-square-foot facility at W227 N752 Westmound Drive in Pewaukee, which is double the size of its previous space at the Technology Innovation Center startup incubator in Wauwatosa. The Pewaukee building is owned by Agtech Building LLC, a company registered to Agro’s chief financial officer. Agro remodeled the offices and labs and built a blending and packaging facility at the site.

Since Arm & Hammer didn’t have any animal probiotic products, the acquisition of Agro was a complementary fit to its portfolio, Druker said.

Spinoff startup gets rolling

One division of Agro BioSciences that was not acquired was Third Wave Bioactives, which was spun off into its own company May 1.

Third Wave is led by Matt Hundt, director of business and product development. The company works out of about 2,000 square feet of the space vacated by Agro, studying common bacterial strains to identify antimicrobial compounds that can act as natural food preservatives and flavors.

Shelly Gebert explains how Third Wave Bioactives’ product interacts with bacteria.

“The synthetics (preservatives) aren’t bad, necessarily, in our minds, but we know this is a push forward for a lot of food companies,” Hundt said. “Whether we look at bacteria that might produce flavors or produce other interesting compounds as they ferment and they grow, we look at those as potential opportunities as food ingredients.”

“Traditionally, a lot of the manufacturing companies, they’re not in the business of developing food ingredients. They look to companies like us to provide them the tools they need.”

The new company has four employees and a research intern, and expects to grow quickly as it serves the growing natural and clean label food industry.

“The acquiring company wasn’t interested in the part of the business that we were working on and we created enough value and opportunity in the first two years we were working in the area that we thought there was value to turn it out,” Hundt said.

Third Wave’s products, which are sold as a powder, are mainly added to perishable foods such as soups, deli salads, sauces, dressings and breads. Its clients range from grocery store commissaries to universities to food manufacturers.

“(Demand for natural foods is) growing to be in foodservice, quick-service restaurants,” Hundt said. “It’s really a much broader market than it was, say, 10 years ago, which is great for us because there’s a lot of food people consume every day that doesn’t necessarily go through a grocery store.”

Third Wave has assembled a supply chain of partners that help it with various steps in the process of creating the products.

“Our products are gluten-free, so people who are looking to formulate without gluten, we can fit in those formulations. The products are pretty versatile,” Hundt said.

In its Wauwtosa labs, Third Wave tests how its products react to heat, changes in pH, and other factors. It also has a third party add the products to different foods for testing.

“We send our products to a chef out in Chicago and he makes the food we ask him for,” Hundt said. “We just had him make a coleslaw for us and we added our ingredients to it.”

Third Wave, which has about 10 customers nationwide and less than $100,000 in annual revenue at this stage, is funded by shareholders who benefitted from the sale of Agro BioSciences, including Rehberger.

“Our managers, they’re several people that were owners in Agro BioSciences,” he said. “Functionally, day-to-day those people now all have jobs in Church & Dwight.”

“We saw an opportunity to compete in the space because we had the microbial background and we had strains that we knew did some of the things that we wanted to do,” Hundt said. “I was fortunate that Agro BioSciences was profitable so we lived on their revenue for the most part of the first two years.”

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Molly Dill, former BizTimes Milwaukee managing editor.

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