Adam Ismail11.01.02
M&A Activity
Merger and acquisition activity has slowed considerably and will not resume until companies get used to a mature marketplace.
By Adam Ismail
Merger and acquisition activity in the natural products industry has basically dried up in the past 18 months, and many people believe it will not accelerate again until companies are given a few years to get used to competing in a mature marketplace. However, there is one company that has picked a growth niche and is going on a shopping spree.
Stake Technology is a Canadian firm founded on sustainable business principles. They have three main business areas including recycling industrial materials, creating pulp from non-wood sources and organic foods and ingredients. The company entered the organic ingredients business by acquiring Sunrich Food Group. At the time, it did not seem to many people that the deal fit its other businesses, but the new acquisition efforts have given the division a very large critical mass. Stake has said it plans to continue growing through acquisitions by finding targets that give it access to new geographic areas or products that fit its distribution.
Hidden in that message may be a new distribution-focused strategy, however. The company is well entrenched in most parts of the value chain for its products, from manufacturing ingredients to selling directly to retailers. In early October, however, it signed an agreement with Natrel, a Canadian dairy, which transferred distribution rights for its Sunrich Valley soy and dairy products to Natrel in certain regions of Canada. In signing the agreement, the company acknowledged that the new partner would penetrate retail outlets much better than Stake could.
Then, just over a week later, the company announced it would acquire the Wild West Organic Harvest Cooperative in a combination cash and stock deal. British Columbia-based Wild West has grown rapidly as a distributor of nutritional products in recent years, now servicing 2400 products. Stake’s Sunrich division had grown both by promoting its own brands, but also through its private label business. Wild West suddenly gave it much needed distribution power to help grow its own brands, but also offer its private label customers new levels of service.
This new acquisition was followed by yet another distribution deal a week later when it announced it was acquiring Simply Organic, an Ontario-based distributor. The Simply Organic deal was very similar to the Wild West transaction in that Stake acquired a high-growth distributor that reached across almost half of Canada. Suddenly the potential reach of Sunrich’s products had gone from regional distribution to nationwide.
Having cemented its distribution acquisition strategy, it then turned to focus on building its ingredients expertise by acquiring Opta Food Ingredients, a U.S.-based supplier of nutritional food ingredients. The $28 million all cash deal allowed Opta to achieve a key piece of its strategy that it has had difficulty executing on—diversifying its customer base away from the mainstream food manufacturers. Not only does the acquisition give Stake a boost in revenues, but it also gives access to a much more sophisticated ingredients distribution arm and research and development facilities.
Without any synergies gained from the new distribution capabilities, the deals alone will boost Stake’s sales by more than 50%, which by itself may be reason enough to pursue its acquisition strategy. So where does Stake go from here? Does it keep acquiring and trying to double its business? It will take some time to merge all the businesses together, and the company needs to buildup its cash base again. Future acquisition targets for the company will likely be in the U.S., having solidified its Canadian business with Wild Harvest and Simply Organic, but also gaining a foothold in the U.S. through Opta. Also, look for Stake to continue growing its business by gaining synergies from the acquisitions, especially the product development capabilities of an innovator like Opta. Regardless, Stake has gone out of its way to put new efforts into its health food business.NW