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Eagle Foods buys its way to top tier of popcorn companies

Paul Smucker Wagstaff

January 12, 2018

By: Mark Scott

Who: Eagle Foods Family Group LLC

What: Bought Cornfields and Popcorn, Indiana

Why it matters: Deals pop company near top of $1.3 billion popcorn industry

 

With a middle name like Smucker, Paul Smucker Wagstaff had to be good.

Wagstaff — a senior executive of The J.M. Smucker Co. and great-great-grandson of founder Jerome Monroe Smucker — walked away from the family business in January 2015 to strike out on his own. Two years and several acquisitions later, his Eagle Family Foods Group LLC  is a leading player in two categories — canned milk and popcorn.

“I’ve been through dozens of acquisitions, so I have a good sense of what it takes to make smart deals and what you have to do to be prepared,” says Wagstaff, CEO of Eagle Foods.

This week, we take a deeper look at how Wagstaff used his experience at Smucker to guide his approach to dealmaking and what it all means for the continued growth of Eagle Foods.

Popping up

Wagstaff was pretty much set after 20 years at Smucker, rising to president of U.S. Consumer Food Division, a $2.4 billion business that includes the Jif, Smucker’s, Crisco, Pillsbury and Uncrustables brands. But he yearned to make his own name in business. He struck out on his own, enlisting the help of long-time friend Jeff Boyle and Kelso & Co., a New York-based private equity firm.

Eagle Foods began in 2015 when Kelso bought Smucker’s condensed and evaporated milk business (hence the name), and then quickly named Wagstaff the CEO. The company turned its attention to the snack food market in 2016, buying up Cornfields Inc. and its G.H. Cretors popcorn brand.

When Popcorn, Indiana went on the market last year, Wagstaff saw an opportunity to solidify Eagle Foods’ place in an industry undergoing consolidation.

If Popcorn, Indiana sounds more like a town than a company that’s because it is both: a small, rural town about 60 miles outside of Indianapolis that is home to one of the leading brands in the Ready-to-Eat (RTE) popcorn category, part of the $1.3 billion overall popcorn industry.

The deal, which closed in August 2017, should make the company the third-largest popcorn manufacturer in the U.S. Wagstaff is keenly aware of how critical industry ranking can be, especially in the midst of all the consolidation that was occurring in the world of popcorn.

“Pepsi has Star Foods, Hershey has SkinnyPop, Conagra has Boomchickapop and now we have G.H. Cretors and Popcorn, Indiana,” Wagstaff says. “The brands below us are way below us. We’re the next big popcorn guy in the marketplace. The top three or four brands is where you want to play and we’re there now. As consolidations are taking place with the big brands being purchased by the big guys, it’s going to be harder for the little guy to compete as shelf space gets more competitive.”

Built to acquire: Wagstaff’s rules of engagement

With Kelso’s money and an appetite for food companies, Wagstaff stocked his team with experienced M&A veterans.

“When you bring in a management team that has experience and you have a partner — in this case, a private equity firm — that’s a powerful union to get a deal done and get it done quickly,” Wagstaff says. “The people we brought in on the management team have gone through a lot of acquisitions.

When Wagstaff approaches an acquisition, he follows a thorough due diligence checklist.

“We know the key areas where we have to check the boxes to meet certain criteria and get a deal done,” Wagstaff says. “This enables us to get a deal done at a speed that we think is practical.”

  1. Clarity of roles and responsibilities. “What is the role and responsibility of every team member who is in on the deal?” he asks. “If it’s so and so’s job to look at the operations of a potential acquisition, we need to trust that person to go and look at the company’s operations and report back.”

It’s a simple concept, but one some leaders have difficulty following in actual practice. Leaders need to have confidence that these important jobs will be managed effectively.

“We have to believe and we have to trust,” Wagstaff says. “That really helps our nimbleness, quickness and speed.”

  1. Communication. “It sounds trite and it sounds basic,” he says. “But it is critical when you are looking to move fast. The clearer the communication and the clearer the mechanism to gather and consider feedback, assess any risks and address any potential issues, the better off you’re going to be.”
  2. Financial analysis. This is where Kelso & Co. enters the picture. “Doing financial analysis, quality of earnings, we’ll work with a third party with Kelso and their financial experts,” he says. “We’ll also look at a couple other consultants, if we need to, on the operations side or on the branded side. We reach out to key retailers that we have good relationships with through our brokers to get insight on what the retailer sees as the pros and cons of a specific brand.”

One of the priorities through the negotiation process is to look at financial performance in an attempt to identify trends, highlights and concerns.

“It’s very typical to have the 12 months when the company is selling something to have pretty strong numbers,” Wagstaff says. “It’s not atypical to have the future 12 months be a little bumpy as you go through the integration. You just want to make sure that when you’re negotiating with the seller, you’re being as thoughtful as possible to capture every scenario that could make the next 12 months difficult.”

Potential buyers should ask about promotions that are planned for the future that could impact sales volume or products that are on the way to being discontinued.

“Conversely, are there any upcoming new products that could boost sales,” he says. “The devil is in the details. It’s working with our team and trying to come to a center ground with the seller on what we think the next 12 months is going to look like and what the past 12 months really look like. That’s always one of the toughest things. Everybody has a little different opinion. It’s going to grow by 5 percent. It’s not going to grow by 5 percent. That’s the kind of negotiation or haggling that you get into.”

Stay disciplined

One of the toughest things for any dealmaker to do is walk away from a negotiation after you’ve put in so much time, effort and energy. That wasn’t the case with Popcorn, Indiana, fortunately, but Wagstaff says it’s something you need to be prepared to do when things don’t go well. One of the things Wagstaff took from his experience at Smucker is the need to be clear about what you’re looking to buy.

“Having a very strong criteria list as to what you would buy and what you wouldn’t buy is really important because you can get into a little bit of the deal fever,” he says. “You think, ‘oh, this is a great opportunity.’ The discipline to stay no is much harder than the discipline to say yes. But when the deal gets hot and heavy and you’ve spent a lot of time on it and you want to get it done, then the metrics change and it doesn’t look as good as you thought, you need to have the conviction to walk away.”

Wagstaff never faced that moment with Popcorn, Indiana and is excited about what the future holds.

“This will definitely provide meaningful growth for us this next year, no question,” Wagstaff says. “It rounds out our portfolio of popcorn.”

Much of Wagstaff’s time now will focus on completing the integration of Cornfields and working through the integration of Popcorn, Indiana.

“As one of the top branded popcorn companies in the country, this helps us find a nice position on the shelf,” he says. “We were already a player in the snack industry and now we can be a bigger player, which is exciting for us.”

How to reach: Eagle Family Foods Group LLC, eaglefoods.com