If you follow the pet trades, or place close attention to what food you put in your dogs belly, you probably are aware that, last week, Procter & Gamble (NYSE: PG) purchased Natura Pet Products, a privately held producer of holistic and natural pet foods.   If not, let me bring you in on the not so secret combination.

The transaction, which was kept very low key inside the trade puts P&G squarely on the front lines of the battle for the premium pet consumer.  Natura possess a well respected portfolio of premium brands, including California Naturals, Innova and Evo.  In the name of full disclosure, I feed my dogs Evo, among other things.

For some the transaction was curious for P&G.  The company possess a small pet business relative to the overall size of the consumer mother-ship.   Many people were betting that the company would go in the other direction, possibly divesting Eukanuba and Iams.   Instead, P&G is trying to catch a bigger wave in the pet world and ride the premium pet food movement to higher profits and therefore an improved equity price.    However, P&G is but one constituency that stands to win, lose or draw from this transaction.  Below we analyze them all.


  • Consumers.  No one wins more than consumers in this deal.   However, this comes with a caveat; it assumes that P&G keeps the formulations and authenticity in tact.  Given the history of such actions in the consumer space this is a reasonably big leap of faith (Ben & Jerry’s anyone).  Let’s assume they do for arguments sake (and for the record I think they will, because it would not be that hard or cost prohibitive).  Consumers win when P&G pushes high quality pet foods into the mass channel making them more widely available.  Further, their ability to produce at scale economies will make them more accessible from a cost standpoint.  Even I might go to Petco to save $10 on a bag of Evo.  Well, at least I would think about it.
  • Independent Pet Specialty Brands.   Love ’em, hate ’em, Natura brands had cache in independent pet specialty.   The safe assumption is that P&G is going to move the brands in to mass, opening up precious shelf space in independent pet specialty, which is space constrained.   Brands like Honest Kitchen, Orijen, Ziwi Peak, Mulligan’s Stew,  and others stand to gain share within this channel as boutiques and  independent chains retrench from Natura brands due to channel conflict.
  • Nature’s Variety/Castor & Pollux.  Congratulations, you just became the number one acquisition targets in natural and holistic pet food in the specialty and natural channel respectively.   I can feel the smile from Catterton Partners and Highland Consumer Partners all the way from the east coast.


  • Independent Pet Specialty.  As much as I love this channel, this is not a favorable turn of events for them, in my opinion.  Natura offered many independent pet specialty stores a one stop shop solution for wellness oriented food products.  Further, these brands have strong affinity that may follow the brands to mass.   Further, if these products do exit pet specialty stores will likely have to take some risk on one or more brands whose staying power is as yet unknown.  There will be a lot of shelf and floor space to negotiate over.


  • Pet Mass.   One would think that Petco and Petsmart would go into the “winners” category as they will get their hands on a well known series of brands consistent with where they are trying to take their image and focus.    Given how easy it would be to market the brand portfolio within mass (grains are bad for your dog, these have no grain), one would think that would be the case.  However, this is Petco and Petsmart we are talking about.  I suspect they will find ways to under monetize their pending asset.
  • Proctor & Gamble.  Only time will tell how this deal turns out for P&G.  I suspect they paid a modest premium on what many believe is a $150 million revenue business, but given the mixed performance within the portfolio it is unlikely that they had to break the bank.   In mass they will go head-to-head with Wellpet, Castor & Pollux, Solid Gold, Blue Buffalo and others, in what has suddenly become a crowded field.   One has to believe their muscle — capital, branding acumen, retail relationships, etc. — will help drive the business to the next level, but only time will tell.


dots2David Chen, founder of Equilibrium Capital Group, interviewed me with respect to my perspective on the Ben & Jerry’s transaction and what it means for sustainability companies raising money going forward.  Below is the substance interview.  It appears on David’s blog Conscience & Commerce™: Mission Driven Commerce. Equilibrium Capital Group and Cascadia Capital have joined forces to try and help mission driven organizations solve their funding challenges.

conscience & commerce:  grappling in the real world with capital market realities

a case example:  ben& jerry’s

in the area of sustainability, we find a set of entrepreneurs who were counter-culture rebels who went on to create a new type of business model that aligned their core values and aspirations with their business objectives and products.

one can argue that the success of these companies is the execution this set of core values and beliefs about sustainability into products, their internal business practices, and therefore into their brand.  in other words, every where you scratch in these companies, in their relations with partners, vendors, customer, you find consistency and authenticity.  the core values are so real, they are a decision support system for their employees.

the irony is that with success, even these firms need to deal with founder/owner transitions, expanding the shareholder base, shareholder liquidity, expansion capital, strengthening the balance sheet, and insuring long term access to capital.  yet paramount in these capital decisions and structures are those core values and aspirations.  even the words “exit & exit strategy” are antithetical to their objective: to create an enterprise that is both financially sustainable, but also a platform for impact and change. the traditional options don’t seem to fit:  selling out to a PE firm, selling to a strategic corporate buyer, IPO, or becoming a consolidator (and that begs the issue of capital access).

we have an opportunity to probe this topic with our good friend bryan jaffe from Cascadia Capital, a leading middle market investment bank with a focus on technology/media, sustainability, and renewable energy sectors. bryan brings deep industry and product expertise in the food industry.  in particular, we are interested in bryan’s perspective on Ben & Jerry’s sale to Unilever, executed by his prior employer Gordian Group, LLC.  in that transaction we learned first hand the need to ensure that capital and company share a common ethos and what it takes to protect the founders and corporate missions from traditional shareholder restrictions. how can you preserve and propagate the very values that created the success and the value in the brand.

Q?:  what was the compelling reason for considering this transaction?   where were founders ben & jerry during this transaction?

BRYAN: Ben & Jerry’s had both a great product and a loyal customer following, but it was an operationally challenged company.  It lacked the case volume or financial muscle to underwrite its own distribution system, which put them at a competitive disadvantage.  As the business matured, earnings growth did not keep pace with investor expectations, and the stock price languished.  There were also stumbles on the mission side of the business, which brought negative publicity.  Shareholders became restless and the directors began to feel the pressure associated with being fiduciaries.

The board brought in a new CEO and hired an investment banker to evaluate alternatives.  While a number of options were pursued, ultimately the market spoke and a strategic sale was deemed to be in the best interest of shareholders.  Unilever could solve the distribution problem.  While Ben and Jerry were both active in the business and influential board members, their voice became somewhat muted due to the public company governance structure.  Net net, the price Unilever was willing to pay was so high relative to the prevailing equity price that the board and founders were hamstrung.  It wasn’t any great secret that Ben and Jerry were opposed to the sale.  Jerry Greenfield’s recent interview in The Guardian confirms that he still has regrets despite the structure of the deal, which was designed to ensure continued adherence to the company’s mission.

Q?:  from where you stood, what were the core values and aspirations in this company?  what did ben & jerry’s stand for? what were the values in the brand? how much had changed with the departure of the founders, ben and jerry?

BRYAN: Ben & Jerry’s was the first real double bottom line company.  They took the concept of balancing social responsibility with economic responsibility to a new scale.  The brand stood for more than just great ice cream.  While they were interested in profitable growth, they felt they had a larger responsibility to the environment in which they operated.  The social mission was the enterprise mission and it drove the corporate, business and functional strategies for the business.  That customers remained loyal over time served to validate this operating model, since consumers were not wanton for choice in the category.

Ben & Jerry’s core values centered on a symbiosis with partners, employees and the community.  Ben and Jerry utilized their company platform to redistribute wealth and help partners who were also trying to achieve a social good.  Ben and Jerry, as individuals and as a collective, stood for a balanced ethic, creating harmony between self-interest and ones obligation to others.  It was a “yin and yang” between values and creating value.

Ben & Jerry’s has continued to perform under the Unilever ownership.  However, I believe some of the authenticity of the mission has been compromised.  At the very least some of the irreverence is gone, since you can’t play the David v. Goliath card anymore.  However, the erosion of the mission started before the sale, when the company was forced to modify its salary cap structure to attract professional management.  The public company ownership structure also undermined the mission.  Unilever continues to adhere to the tenets of the deal, but to them it is a business.  They haven’t expanded the mission beyond their contractual obligations. The question is what will change if the business under performs.  A deep consumer recession may test that theory.

Q?:  what did each party think they were buying or selling?  what were the differences in the ethos?

BRYAN: Unilever was buying a brand and the opportunity to exploit that brand with their distribution and branding muscle.  They approached the transaction from a traditional public company ethos – the ability to accrete earnings and therefore drive value for their shareholders.  Unilever took on the social responsibility aspect as a means to get access to the brand; it was part of the purchase price so to speak.  At the same time, they believed that owning Ben & Jerry’s would enhance the perception among consumers that they were socially emancipated on some level.   You will note that Unilever now features a “values” section on their homepage, which includes addressing environmental and social concerns.

Ben & Jerry’s thought it was buying a solution to their distribution challenges and a means to perpetuate the social mission of the business.  Unilever convinced Ben and Jerry that this was an opportunity to grow the company’s social commitment.   The difference in ethos was evidenced in the structure of the deal.  If this was a marriage of like minded enterprises Unilever would not have had to take the steps they did to convince stakeholders their interest was authentic and their intentions were pure.   On its face, some people might wrongly conclude that at a high enough price, the social ethos could be made malleable, but that was not the case.

Q?:  what happened after this transaction? and with your “evolved” insights on sustainability, what would you have done differently?

BRYAN: For the most part it appears that Unilever has lived up to their end of the bargain contractually – “letter of the law”.  But again, Ben & Jerry’s has performed for them as an asset, so there was not a substantial incentive to deviate from that strategy.  However, they have done little, if anything, to expand the mission of Ben & Jerry’s.  That is where people should be disappointed.  In 2005, Walt Freese, CEO, acknowledged some softening of adherence to the company’s true mission.  What is interesting is that some a smart such branding organization would not see this as undermining the brand.

With respect to what I would have done differently, in short I would have never taken the company public, not on the terms that were implemented.  At the very least, I would have established two classes of common and kept voting with respect to a change of control in the hands of the founders. That was a viable option at that time.  I’m not sure that is true to today.  Additionally, I would have kept the board small so as to limit dilution of the founders influence.  Ben & Jerry’s had a large unwieldy board.  That all being said, I think ultimately there was not an appropriate construct available to raise the monies necessary to grow the business while fully insuring adherence to the mission.  This is why you haven’t seen more double bottom line companies go public.  A new solution must emerge for this class of companies.

Q?:  what new framework would you apply to these unique mission balanced firms as they consider the issues of founder/owner transition and shareholder liquidity?

BRYAN: Over the past five years we have seen health and wellness and sustainability emerge as investable categories and pools of capital have been raised to fund companies with missions that fit within these industries.  At the highest level, the market is moving in the right direction.  Yet, firms like DBL Capital and TBL Capital don’t have access to the funds necessary to help larger sustainable companies reach the next level.  They are also seeking venture like returns and institutional governance structures.  This does not work for many mission based organizations.

It is my view that today there are pools of capital, outside the institutional context, that would invest in later stage sustainable businesses without receiving the rights afforded to shareholders of public companies or venture capital/private equity firms.  Eventually, I think there will be institutional funds that fund later stage deals on these same terms that emerge as well.  However, more success stories are necessary before that happens at scale.  The question is through what means to organize the existing pools of capital, how to match buyers and sellers and what rights to offer each side to clear the market.   At the base level, you have to consistency of ethos between issuers and investors.

Time is a great equalizer.  As time passes we gain perspective.  We look back on things we did, experiences we had, and view them through a different lens.  I don’t have much affinity for mulligans in real life and I don’t wish one in this instance.  However, now I look back at the implications and recognize that a deal, a single deal, could create a paradigm shift for an industry.  To recognize that I was part of it gives me pause.  However, to now recognize the negative implications makes me think; maybe that wasn’t such a good idea.

You will have to forgive me, I was born into the wrong era for my personal value system.  I was born into a era of excess.  Continual stock market movements in the up and right direction.  Real estate valuations which doubled and then doubled again, and then again.  Greed was good.  Millikan, Boesky, Kravis, these were my childhood idols.  You were only as good as the last deal you had done, and if that deal was not mentioned above the crease on the front page of the Wall Street Journal than it wasn’t a real deal and you should not pass go or collect $200.  For a Jewish kid from Utah, those were long odds.  Then along came Ben & Jerry’s.

Ben Cohen and Jerry Greenfield were childhood friends born four days apart in Brooklyn, New York, in 1951.  Twenty-four years later, the duo would take a correspondence course on how to make ice cream.  With an initial investment of $12,000 the iconic brand was launched in Burlington, Vermont in May 1978.  From there the business took off, largely on the backs of the founders personalities and the social mission that under lied the business against the backdrop of the feel good ’80s and go-go ’90s. In 1985, the company went public on the NASDAQ for $13.00.

The social mission of Ben & Jerry’s was largely oriented around sustainable consumption and a symbiotic relationship with its partners and employees.  In effect, it was the first double bottom line company to go public.  Each Ben & Jerry’s was to be made of recycled materials and the company made a clear commitment to reducing solid and dairy waste, recycling and water and energy conservation at the company’s facilities.  Further, it gave 7.5% of pre-tax profits to charitable organizations.   Ben & Jerry’s offered employees generous benefits and a living wage.  Notably, in 1988, the company ceased production of its popular Oreo Mint flavor as it disliked doing business with the owner of the Oreo brand, RJR Nabisco. A  good summary of Ben & Jerry’s social responsibility program can be found here.

The company was not without its issues both inside and out.  Ben & Jerry’s entered into a number of unions that it thought were beneficial to the communities in which they served, but that turned out not to be the case.  “Swinegate” and the “Rainforest fiasco” were but two examples.  However, it might be hard to find fault with the company as these endeavors seemed to undermine the mission of the company due to a lack of due diligence, as opposed to bad intention.  More troubling was the use of toxins by milk suppliers in the Vermont region in which Ben & Jerry’s sourced, running counter to their “all natural” claims.  The company also resisted attempts to unionize subsets of workers and removed a salary cap so it could pay its senior management more money, though the later was necessary to attract professional management to the enterprise.

However, the real problem with Ben & Jerry’s was that it took capital from individual investors.  With that reality came the expectation of a return on their capital contribution.  After flying out of the gate, BJIC lost 66% of its value between 1993 and 1995, with the precipitous decline coming in the second half of 1994,  as a result of flagging sales, an inability to solve mounting distribution challenges and significant asset writedowns at its manufacturing facilities.  The stock languished at those levels for the next 4 years at or below the initial public offering price.

By 1997, investor unrest was mounting and criticism of Ben & Jerry’s operating practice was growing among stockholders.  While losses were mounting, social activism funded by the company and charitable giving continued with little restraint.   In need of a turnaround, Ben & Jerry’s tapped Perry Odak, a proven operational manager, who, ironically, had run, among other things, the Browning and Winchester operations of Fabrique National Corporation, to refocus the business on profitability and realign the business strategy. Odak in turn, hired Gordian Group, LLC (Gordian), my previous employer, to help it evaluate its options.  Despite the market realities, Ben and Jerry had no interest in selling the company.

Over the course of several years, Gordian assisted Ben & Jerry’s board in a variety of transactions, including a sale of the company, an investment in the company, distribution joint ventures and product line expansion.  Ultimately, the company was sold to Unilever in April of 2000, for $38/share or $360 million, twice the initial indications of interest.   To assure that the social mission of Ben & Jerry’s carried on, pursuant to the definitive agreement, Ben & Jerry’s was to operate as an independent entity and its board would remain in place to ensure that it’s social mission was upheld. In addition to the consideration to shareholders, Unilever agreed to contribute $5 million to the Ben & Jerry’s Foundation, create a $5 million fund to help minority-owned businesses and others in poor neighborhoods and distribute $5 million to employees in six months.  In short, Ben & Jerry’s board thought they won — achieving value and liquidity for shareholders and getting its acquiror to buy in to the social mission of the enterprise.  Gordian felt they had won as well, and were awarded Merger & Acquisitions, Middle Market Deal of the Year for 2000.  Ben and Jerry, however felt ill.

Much has been written about what Unilever did to Ben & Jerry’s post close, but that is not the central issue that I want to focus on.  Rather, I’m concern about the precedent it has set for socially based operating companies to take capital from the public or private markets.  In short, there are dozens of really great natural and organic food companies that will never trust the capital markets as a means for liquidity based on what happened to Ben & Jerry’s.  I’m not happy to say, I participated in the deal that created the barrier.

Some days I wish Ben or Jerry were more like Gary Erickson, CEO of Clif Bar.  Erickson said in this article that he would never be tempted to sell the company or take it public.  “They’ll want to do it more about the one bottom line: money,” Erickson said of people who want to buy Clif Bar. “Going public — just shoot me. Having to talk to Wall Street every day?”  However, unlike Clif Bar, a subset of these companies need capital to take themselves to the next level or secure the financial futures of their shareholders.

So for a society which is increasingly becoming green and socially responsible in our consumption patterns, how do we fund enterprises who put their ethos ahead of the profitability? I don’t think that its too much to ask for a socially acceptable solution to emerge. For these companies to compete with better funded multi-nationals, we will have to find a way.

Have any ideas? Inquiring minds want to know.