Middle Market Deal of the Year: Arbor’s simple plan for deli meat makes millionaires

Go national.

This was Arbor Investments’s simple, but difficult, plan for Columbus Manufacturing, when it acquired the 100-year old deli-meats company in 2012.

Columbus was celebrated on the West Coast for its upscale products, which include Crespone salami, slow-aged prosciutto and hickory smoked turkey. The Hayward, California, company was unknown in the East.

Arbor, which focuses on food-and-beverage deals, wanted to change that, said Greg Purcell, Arbor’s CEO. The Chicago PE firm spent $215 million on Columbus, using its $400 million third fund to invest.

“We knew we had purchased a gem of a business but also realized the mountain we had to climb to get the products national,” said Purcell, who typically uses Columbus meats in his lunchtime sandwiches.

The first fix? Upgrade Columbus’s management team.

Arbor replaced six of the company’s eight senior members, including CEO Tim Fallon. The firm tapped Joe Ennen, who came with 20 years in the food business including management roles at Safeway and Frito-Lay, to become CEO. (Fallon ended up joining Arbor, where he is a senior operating partner.)

Arbor also named Michael Fox, also from Safeway and Frito Lay, to handle marketing and R&D. Arbor ended up doubling the size of its sales department to more than 30 people and tripling the company’s R&D and marketing units, Purcell said.

Arbor’s big plans meant Columbus needed more capacity. The PE firm expanded two Columbus plants in south San Francisco, adding robotics, while closing another. It relocated 90 percent of employees to a production facility on San Francisco Bay, Purcell said. Arbor paid $60 million for the upgrades, on top of its initial $90 million equity investment. “I like to call this the bet-the-farm capex,” Purcell said.

Not all was smooth sailing for Arbor. Avian flu caused turkey prices to jump in 2014. The next year, the International Agency for Research on Cancer, the cancer agency of the World Health Organization, classified processed meat, including deli meat, as a potential carcinogen. Columbus’s EBITDA contracted by $10 million during this time, while leverage spiked to 9x, Purcell said. “The banks weren’t happy with us,” said Purcell, with a laugh.

Arbor hired Eleven, the secretive branding firm used by Apple, to overhaul the Columbus brand. The deli-meat maker began targeting Millennials by focusing on the “artisanal nature” of its products. Columbus launched an advertising and digital media campaign, called “#No Baloney,” that emphasized the high quality of its products.

Columbus’s deli meats are free of nitrates, do not contain antibiotics and use only premium cuts of pork and beef. (Columbus deli meats are also expensive and sell for an average price of $13 a pound.)

Seeking to cater to Millennial tastes, which apparently favor wine over beer, Columbus’s website advises consumers on which alcoholic beverage should be paired with a slice of meat. (Prosciutto is best with an unoaked Chardonnay, the Columbus site says, while Cotto salami should be eaten with a Pilsner.)

“We wanted to do for meat what craft beer had done for the beer business,” CEO Ennen said.

During Arbor’s five-year tenure, Columbus added more than 120 new items, including 30 in 2017. It also signed up more than 30 blue-chip retailers as customers from 2016 to 2017, including Walmart and its Sam’s Club. Sales increased by $100 million to $304 million in 2017, while Ebitda shot up nearly 71 percent. Headcount jumped to 390.

Arbor put Columbus up for sale in July 2017. It hired Todd Kaplan, executive vice chairman of global corporate and investment banking at Bank of America Merrill Lynch to find a buyer. Columbus targeted only strategics.

Hormel Foods ended up winning the auction, paying $850 million for Columbus. The Chicago buyout shop made nearly 8x its money with the sale. The Columbus deal allowed Arbor to return all of Fund III’s invested capital, Purcell said. “If you are an LP, you got all your money back and you own nine other companies for free,” he said.

The sale also made several Columbus employees millionaires. Twenty people from Columbus’s senior leadership team shared a pool of $33 million, Purcell said. “There were a lot of really grateful, hardworking executives,” he said.

Action Item: For more information email Purcell at purcell@arborpic.com

Correction: A prior version of this story incorrectly stated that Faegre Baker Daniels was counsel to Arbor. It was DLA Piper. The story has been changed.