Investors from other states increasingly want a slice of America’s Dairyland. Acquisitions of Wisconsin cheese-making companies have escalated over the past years and continue to accelerate. Wisconsin food companies such as Plymouth-based Sartori Food Corp. and Green Bay’s Schreiber Foods Inc. have made strategic acquisitions of cheese makers. Out-of-state and international players such as Texas-based Fairmount Food Group LLC, Danish and Swedish Arla Foods and French Groupe Lactalis SA have invested in Wisconsin cheese companies both as strategic and private equity buyers.
The key driver in the interest in Wisconsin cheese makers is the increased consumer interest in high-end cheese, said James Robson chief executive officer of the Wisconsin Milk Marketing Board.
“Part of it is that more and more consumers are discovering that there are cheeses made in the U.S. in places like Wisconsin that are on par with things that they thought only came from Europe,” Robson said. “And because (customers) are accustomed to paying higher prices for the quality and uniqueness, cheese makers are able to get better prices.”
Within the next 12 to 24 months, California will likely surpass Wisconsin as the nation’s largest cheese producing state. However, buyers of cheese companies aren’t looking at California in the ways they’re looking at Wisconsin, because of the growing interest in specialty cheese making here.
Plymouth-based Sartori Foods Corp. has purchased two Wisconsin cheese makers in the past 13 months – Linden-based Linden Cheese Co., a maker of specialty blue cheeses; and Antigo Cheese, an maker of Parmesan and other hard, aged cheeses, with locations in Antigo and Blackfoot, Idaho.
Sartori Foods will look for additional opportunities in the cheese industry, according to Jim Satrori, president and chief executive officer of the company.
Sartori said the calls from potential suitors of his company have been increasing recently.
“It’s several a week,” he said. “It’s amazing. In the last 12 months, the activity in the number of calls has stepped up. I don’t know if it’s because we’ve stepped up or because it’s a seller’s market now.”
Sartori Food is privately held, and Sartori said his family intends to retain ownership.
Several other Wisconsin cheese producers report similar interest in their companies.
“I get a couple of calls a week,” said Sid Cook, owner of Carr Valley Cheese Co. Inc., and a fourth-generation Wisconsin master cheesemaker. “You never know if they’re fishing. I never take them too serious, because I’m having too much fun.”
Carr Valley purchased its third plant about 18 months ago from a cheese company that had closed. Headquartered in La Valle, Carr Valley Cheese makes more than 50 varieties of cheese, many in the artisan and specialty categories, in its three facilities.
Currently, specialty cheese making constitutes about 15 percent of all cheese production in Wisconsin – a figure that will likely increase dramatically in future years, Robson said.
Most of California’s cheese makers specialize in commodity cheeses such as cheddar and mozzarella, produced in large blocks that sell for about $3 to $5 per pound at retail stores. However, specialty and artisan cheeses routinely sell for $15 to $25 per pound, generating higher profit margins, said Victoria Fox, managing director with Milwaukee-based investment banking firm Emory & Co., who has assisted in several food and cheese acquisitions.
“Buyers are always looking for a niche to buy into,” she said. “Cheese companies with an established name brand and distribution channels are very attractive to other companies now.”
Wisconsin’s reputation for specialty and artisan cheese makes it a natural area of interest for acquisition.
“I think Wisconsin is known for its specialty base of cheese companies, as opposed to the mass-produced commodity in other states,” said Sam Hillin, chief financial officer of Fairmount Food Group LLC, a Dallas-based company focused on acquiring and growing food companies.
Fairmount owns two Wisconsin cheese businesses with specialty divisions – DCI Cheese Co. in Richfield and Green Bay Cheese Co. in Green Bay. Fairmount also owns Swissrose International Inc., which is headquartered in New Jersey and has a facility in Mayville.
Fairmount is backed by GTCR Golder Rauner LLC, a Chicago based private equity firm. Hillin said Fairmount is most interested in buying food companies with good growth characteristics, such as producers of specialty or gourmet cheeses.
Wisconsin’s rich cheese making heritage and the industry’s fragmented nature are also driving interest in acquiring cheese producers, Robson said.
“It’s about heritage and standards,” Cook said. “It’s a generational thing. There is an art to it. You don’t read a book and then you’ve got it. It takes years of experience.”
John Umhoefer, executive director of the Wisconsin Cheese Makers Association, said there are other built-in attractors for outside investors, as well.
“There’s a brain trust of cheese makers and the infrastructure from the University of Wisconsin to culture factories and whey processing plants and equipment makers in Wisconsin,” Umhoefer said. “(Foreign investment) proves our value continually, because the Danes, the Irish and the French look where the quality cheese making is.”
While Wisconsin has a large number of cheese companies, most of them are still relatively small, said G. Woodrow “Woodie” Adkins, executive partner with Facilitator Capital Fund, a Milwaukee private equity firm, and chairman of Thiel Cheese & Ingredients LLC, based in Hilbert.
Eric Liebetrau, president of Park Cheese Co. Inc., based in Fond du Lac, said, “This is a target-rich environment for acquisitions in the cheese market. If you are committed to expanding your market, the best opportunities for acquiring are here in Wisconsin. As long as there are bigger corporations that want to expand their presence, M&A will continue to happen around here.”
Many cheese producers who used to rely on commodity cheese production have turned to artisan and gourmet products as a way to keep their companies alive, Adkins said.
“You can ride through the state and find a lot of closed cheese plants,” Adkins said. “The survivors have developed brands.”
Many survivors, such as Sargento Foods Inc. and Sartori Food Corp., have not only developed their own brands – they’ve used acquisitions as a way to grow their companies.
Investments in Wisconsin cheese makers, whether by in-state food companies, out-of-state firms or private equity funds, are good for the state’s cheese industry, Robson said.
“It brings some financial muscle and some stability,” Robson said. “It puts them on a level that they can compete with non-Wisconsin companies. There are people in Wisconsin that will disagree with me. But from my perspective, it helps companies to have financial stability. And for owners that have put a lot years into building their companies, a lot of them get to keep making cheese.”
Because Wisconsin has many small and medium sized cheese makers, interest in buying those cheese makers in the state is likely to continue, Fox said.
“That’s what is nice about the food industry,” she said. “You have small startup companies, which grow into medium-sized companies and large companies will consolidate them. We need smaller companies for innovative and niche products. And we need (companies like) Kraft Foods to buy everything. They wait for someone else to grow (companies) big to buy them.”
Wisconsin Food M&A Activity
Date Target Acquirer
2006 The Antigo Cheese Co. Sartori Food Corp.
2006 White Clover Dairy Co. Arla Foods AmbA
2006 Burlington Foodservice Company Reinhart Foodservice LLC
2006 American Italian Pasta Co. – Kenosha Plant ST Specialty Foods Inc.
2006 Certified Grocers Midwest – Affiliate Fresh Brands Inc.
2006 Frank J. Catanzaro Sons & Daughters Reinhart Foodservice – Reyes Holding Inc.
2005 Hilltop Valley Dairy Schreiber Foods Inc.
2005 Schneider Cheese Inc. Saputo Inc.
2005 DCI Cheese Co. Fairmount Food Group LLC
2005 Linden Cheese Company Sartori Food Corp.
2005 Arriba Foods Inc. Hormel Foods Corp.
2005 814 Americas Inc. Patrick Cudahy Inc. – Smithfield Foods
2005 James Page Brewing Co. – Certain Brands Stevens Point Brewery
2005 Northland Cranberries – Branded Juice Apple & Eve LLC
2005 Total Logistics Inc. SUPERVALU Inc.
2005 Chr. Hansen – Food Ingredients PAI Partners
2005 Pick n’ Save – 7 Stores Roundy’s
2005 Roundy’s Inc. – 2 Distribution Centers Nash Finch Co.
2005 Sturm Foods Inc. Hicks, Muse, Tate and Furst
2005 Roundy’s Inc. – Certain Assets SUPERVALU Inc.
2005 American Foods Group LLC Rosen Diversified Inc.
2005 Swissland Packing Co. Straus Veal & Lamb
2005 Northland Cranberries Inc. New Harvest Inc.
2005 Fresh Brands Inc. Certified Holdings Inc.
2004 Rondele Specialty Foods LLC Groupe Lactalis SA
2004 Rupp GmbH Schreiber Foods Inc.
2004 Level Valley Creamery Inc. Schreiber Foods Inc.
2003 Century Food International Hormel Foods Corp.
2003 Bongrain SA Mullins Cheese Inc.
2003 International Bioflavors Inc. Givaudan AG
2002 Raskas Foods Inc. Schreiber Foods Inc.
Note 1 Dynamix Dairy Industries Ltd. Schreiber Foods Inc.
(Source: Compiled by Emory & Co, using Food Institute, Done Deals & Mergerstat)
(1) Schreiber acquired 11% and 32% stakes in Feb 2002 and Feb 2004, respectively.
M&A continues in food industry
Merger and acquisition activity in the food industry continues at record pace due to the tremendous amount of liquidity in the economy and a trend toward consolidation.
While largely dominated by strategic acquirers with existing food operations, private equity buyers are aggressively pursuing food deals as well. This competitive environment results in relatively high purchase price multiples, strong stock market performance and an increase in the number of transactions.
In addition to strategic buyers such as Kraft Foods Inc., Hormel Foods Corp. and Hain Celestial Group Inc., food focused private-equity funds are looking for acquisitions, as well, according to Victoria Fox, managing director with Emory & Co., a middle-market investment bank with offices in Milwaukee and Madison.
Emory & Co. has more than 200 private equity groups in its proprietary database that currently own or have an interest in acquiring food companies. The groups include Horizon Partners, which owns a peanut processing operation, TSG Consumer Products, which owns numerous food companies, and Arbor PIC, which owns several meat and ethnic food companies.
In 2005, Arbor sold its Milwaukee-based Mexican Accent (Manny’s Mexican food products) portfolio company to Hormel Foods, and has since acquired numerous other food companies.
Companies in certain niches tend to command a premium in this competitive M&A market. Hot niches include organic, ethnic, branded, and ready-to-eat products with a strong distribution network.
The organic foods niche has seen tremendous growth recently and is expected to grow another 14 percent from $14.5 billion in 2005 to a projected $16 billion in 2006, Fox said.
Amazon.com now carries over 3,000 natural and organic products in its new grocer section and Wal-Mart Stores Inc. announced plans to double its organic offerings.
Larger food companies are clamoring to acquire niche organic companies of all sizes, enticed by the profit margins and demand for organics, Fox said.
Earlier this year, Emory & Co. sold Bare Fruit, an organic fruit snack company based on the West Coast. Like many organic food companies, the owners of Bare Fruit were faced with the challenge of having more demand then they could handle. They elected to partner with an equity investor with the ability to handle the capital requirements needed to expand the business, Fox said. The owners retained a minority interest and continue to run day-to-day operations.
Emory is currently representing two other niche organic food companies in similar situations, Fox said.
