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| Source: | LOHAS Weekly Newsletter |
| Published: | Saturday, November 01, 1997 |
SAN FRANCISCO—Arrowhead Mills, a pioneer in the organic cereal and grain business, is reported to be in merger talks with Dana Alexander Inc., maker of the Terra Chips brand of natural snack products. Both companies, well established in the natural products arena, are majority-held by The Shansby Group, a venture capital firm based here.
“I will not deny that negotiations are taking place,” says Gary Shansby, general partner of the $120 million private equity fund and also chairman of Arrowhead Mills. Additionally, Shansby says, “We are in negotiations with other companies and plan to build the group’s ownership interest in natural and organic foods. This could lead to a public offering of companies in 1998.”
Arrowhead Mills of Hereford, TX, was founded in the early 1960s by Texas Panhandle farmer Frank Ford, a long-time organic industry leader. Ford retired in 1995 when Shansby took over majority control of the company. At that time, Arrowhead Mills also acquired natural pasta maker DeBoles Nutritional Foods. Annual sales for Arrowhead Mills are in excess of $25 million, Shansby says.
Dana Alexander, founded in 1987 and based in Brooklyn, NY, has annual sales of $20 million for its vegetable-based, reduced-fat Terra Chips products. While the products have been successfully distributed in specialty and club stores, Terra is the largest snack foods company of its type in the natural foods channel, Shansby says.
Terra Chips founders and chefs Dana Sinkler and Alexander Dzieduszycki will continue to run the company and reportedly retain 40% ownership, according to one industry source. “Currently, the plan is to keep the two companies—Arrowhead Mills and Terra Chips—intact,” Sinkler says.
Shansby says his firm’s natural foods strategy is similar to its approach in the Mexican foods arena, where Shansby holds a 30% stake in Texas-based Authentic Specialty Foods. Authentic conducted a $32 million IPO in August and simultaneously acquired the La Victoria brand. Authentic also recently acquired La Monita Food Products in a deal valued at $2.75 million.
“We originally combined two companies, went public, and are now using company capital and Shansby capital to build up the largest and most profitable company in the Mexican foods arena,” he says.
“The Arrowhead Mills and Terra Chips franchises are very strong and would be well received as a public company,” comments Matt Patsky, senior VP with Boston-based investment banker Adams, Harkness & Hill.
“Similar to the Mexican foods business, the natural foods business is highly fragmented and made up of many companies [each] with annual sales of less than $10 million,” Shansby says. “Though they may be small, their products are of high quality. There’s no reason we can’t acquire some of these companies. With the exception of the Hain Food Group (NOSH) or Smucker’s Quality Beverages, we’re not really seeing this strategy take place in natural foods yet.”
According to Shansby and an article in the Sept. 15 issue of Buyouts, the Shansby Group plans to raise a third investment fund in 1998, targeted for $200 million. The article also reported that Shansby initially had been planning to sell Arrowhead Mills and Terra Chips, with Wasserstein Perella & Co. as the investment banker. The deal was being actively shopped in summer and early fall, according to sources, who state that the valuations may have been too high at the time.
However, Shansby, who was chairman of the Shaklee Corp. in the mid-70s, says the company’s investments in natural foods are an extension of his commitment to health and nutrition. “We see this industry as an opportunity for growth and are not about to build something and then sell it. We see it as a buildup process over many years.”