Risk Taker: Irwin Simon's Recipe for Deals
Risk Taker: Irwin Simon's Recipe for Deals
A journey from Häagen-Dazs to Hain Celestial
How did a kid from a tiny town in Nova Scotia build one of America’s largest natural food companies? This is the story of Irwin Simon, who went from stocking cans of soup in his father’s grocery store to forging Hain Celestial.
We’ll look at lessons from Simon’s early years in the business, how he pulled of his first deals, and his formula for acquiring companies.
“My father wasn't a risk taker and that held him back. Today, taking a risk is something I'm willing to do, and that's probably from seeing what my father didn't do in life.”
This is not investment advice. Always do your own research and due diligence.
Climbing the ladder
Simon grew up in the small town of Glace Bay, Nova Scotia. His father owned a grocery store, Simon’s Dairy. Everyone in the family helped out and Simon stocked the shelves after school and over the summers.
“My father taught us work ethics, how to treat people and work with people. In a small town, what was important was maintaining the reputation of the family name - that's the thing you'll have till death.”
There he got an early appreciation for the power of brands:
“With my father in the store, it was Campbell’s Soup in that red can, that was always in our store, and Heinz ketchup - these were products you always had to have in the store. Pillsbury, Coca-Cola, Canada Dry. They stood for something.”
After college Simon started in marketing at the Canadian licensee for Häagen-Dazs ice cream. When Pillsbury bought the brand in 1985, he was offered a job at the Häagen-Dazs headquarters in New York City.
“It was one of the greatest jobs I ever had,” Simon says of the experience. “I learned the value of brand equity and selling quality products, but the big thing at Häagen-Dazs was building the brand. It was started in Bronx, New York, but the perception was that Häagen-Dazs was an international brand created in Sweden.”
Simon had the chance to work alongside the company’s founder, Reuben Mattus, and rose through the ranks. But the pace just wasn’t fast enough for him.
“I was frustrated. I wasn’t being challenged. Things moved much slower than I wanted. A new product took two years.”
He left to join New York billionaire Daniel Abraham at diet company Slim-Fast. That turned out to be a bad move and almost the opposite experience from Häagen-Dazs.
“Slim-Fast was a fast-growing brand but totally opposite to Häagen-Dazs. Disastrous- no structure, no strategic plans. What I learned there went against what I learned from youth. People were treated badly. Probably the most valuable thing I learned at Haagen-Dazs was brand equity. Slim-Fast would put their brand on toiled paper if they thought it could sell $5 worth. I hated it.”
It was a cautionary tale even though the company was successful enough to eventually be sold to Unilever in 2000 for $2.3 billion.
“There was no process. There was no strategy. It was, in essence, taking things, throwing them against the wall and seeing if they would stick.”
“Advertising alone cannot sustain growth,” Simon says. “You need quality products, a good strategy and the operational expertise to bring everything together.”
When he decided to move on, he faced a choice: continue to climb the ladder at another corporation or go out on his own.
“I spent 15 years kissing ass. And I learned three things: corporate life is not for me; brand equity is incredibly valuable; and the major food companies drop pretty big crumbs.”
He later told an anecdote about a corporate interview:
“When I was interviewing for a job they asked me, "Let's pretend you're a bird. If you were a bird and you had to go build nests for all your birds, would you build twig by twig, dropping one off at a time at all the four nests, or would you build one complete nest at a time."
I said, "Why don't you just ask me as a human being if I know how to juggle a lot of jobs instead of asking me if I were a bird."
I didn't work there.”
Simon was done kissing ass. Driven by the memory of his father toiling away at the store, he wanted more and he was ready to prove himself.
“I had to establish myself. My plan was to find a business, find products, find brands, find money.”
“I learned two things from my father. In his best year, he made what it costs me to send one of my kids to private school today. He was a nice, gentle man, not a great businessman, not a risk taker.”
Pulling off impossible deals
“I had a vision of wanting to buy companies with niche brands and niche categories. A lot of people talk about it, a lot of people want to do it, and there are some who do it. I saw nobody doing it. I saw nobody taking kosher foods, medically directed foods, health foods, to the next level.”
Executing this vision was a high wire act. Simon had to risk everything he had.
In 1992, at age 33, he pulled together around $500,000 from savings, friends, and a second mortgage on his apartment. Over the course of a year he lined up four deals, hoping to combine four tiny struggling specialty food companies into something that had enough scale to survive.
First he bought California Slim, a struggling Slim-Fast competitor for a small amount of cash and a royalty agreement. Only two months later came Long Island-based Kineret, a $4 million sales kosher frozen foods company. Kineret then acquired a frozen soy pizza product line called Pizsoy for $300,000. Three months after that, Simon purchased Barricini, a nondairy ice cream maker for $200,000 and equity.
Everything hinged on persuading the sellers to be paid once he was able to raise capital around his collection of assets.
“So I took my own money and put down deposits on each one, and I went out and sold my story to these people, that I was going to raise money and build this big company, that I knew what I was doing, that I was a great marketer, that I was a great visionary, and I guess it worked because people liked me and had confidence in me, but really I didn’t have a clue.
I’d never before had to worry about money because I had worked for companies with deep pockets. I never had to raise money. I never had to meet payroll. But I convinced all four of these people that I had the other companies, and that I had the money. Next I had to go raise the money. Knocked on the doors of banks, VC firms, everywhere - they all absolutely thought I was just whacked out.”
Raising capital was difficult - he had no track record, no sponsor, and the clock was ticking. He ended up raising the equity in the form of a tiny IPO: in November 1993, he raised $4 million by selling 48% of the company. This was done by a boiler room operation called Lew Lieberbaum that left him with only 70% of the proceeds.
“After I paid lawyers, underwriters and everyone else, I probably had enough money to pay for a taxi home.”
Still, he had acquired control of the companies and started turning them around: he cut costs, moved a lot of the manufacturing to contract manufacturers with more scale and expertise. His own focus was on improving the marketing and distribution.
“When we acquired Kineret, the packaging was 18th century packaging. When I went to them and said we have to do low-fat and better-for-you foods, they said nobody would eat them.”
Only four years later, the company would have 250 products and $69 million in revenue.
Betting the firm, again
Simon wanted more scale and soon found his next deal: Hain Pure Foods. An ex Drexel banker called Andrew Heyer helped him put together a $23 million LBO in April 1994. The company had $52 million in sales and its largest product were all-natural rice cakes, a category dominated by Quaker Oats.
“It made us a major player in the natural-food industry. It allowed me to hire a different level of people, and from a company standpoint, it allowed me to be able to participate in certain advertising and promotions and upgrade systems.”
Simon immediately improved marketing and added more products. He repackaged the rice cakes in brightly colored, resealable cardboard cartons and introduced new flavors such as peanut butter crunch and strawberry shortcake.
“Good-for-you doesn't have to taste like it.”
While others were wary of Quaker Oats’s dominant position, Simon was happy to be the number two in a growing category. He didn’t think of it as a zero-sum game. Instead, he considered marketing by his larger competitors to be helpful: it expanded the category. Quaker spent $35 million in one year to boost their rice cakes business.
“People always ask me, 'Doesn't Quaker frighten you?"' he told a Forbes reporter in 1996. "But every time I see Quaker ads on TV I just shout, 'Yeah!' They're growing the category.'”
Another example of this were baked potato chips which he acquired with the Terra brand. Frito-Lay spent $50 million introducing and promoting its baked potato chips - advertised as a healthier alternative to traditional potato chips. Simon believed this would boost Terra chips as well.
“I love it when the big guys come in.”
The company’s name changed to Hain Food Group and, unhindered by bureaucracy, Simon could unleash his creativity.
“We came out with 60 new products in one year with Hain. When I worked in the big companies, it would take us seven years to come out with 60 new products. So strategic marketing, being a visionary and making things happen quickly all came from big company experience.”
This “slipstream strategy” of following the large food companies was risky at times. In 1997 the rice cake fad waned and Hain’s sales took a serious hit. Simon urgently focused on diversifying his portfolio of brands.
He continued to acquire small companies, expanding into tea, potato chips, non-dairy milk, cereal, other frozen foods, baby food, soup, cold-pressed juice, among others.
The last transformative deal was Celestial, the leader in herbal teas, at which point the company became Hain Celestial.
“Every time I went out and did another deal I risked the company, because I was borrowing $30 to 40 million, and I never cashed out. The question that always came back, always, was, do I just stay this small little company, do I have a bigger percentage of the company, or do I go out and take a risk by putting more debt on the company and become bigger, with the risk of it all blowing up? And I always just felt bigger is better, and I always knew I was betting the firm.”
The roll-up recipe
“I didn't want to be a manufacturer or own brick and mortar and build plants and stuff like that. I like to keep things simple in my life and if I could concentrate on building a brand and let someone else manufacture these products for me under my formulas and recipes.”
“Other people know how to create brands, I know how to take it to the next step.”
“My philosophy was that if I bought a lot of small companies and brought the lessons I learned in corporate America, my strategic vision and the entrepreneurship that I had growing up as a kid and being in a family business, that I could take all these little businesses to the next level. They had not shown up on the screen of the big guys yet; the big guys were not there.”
Over time, Simon refined an acquisition strategy that played to his strengths in marketing (and dealmaking). He listened to dozens of pitches a month, often hunting for new ideas at trade fairs. All new ideas were filtered:
Market category with structural growth (in this case healthy/natural food)
Leading brand in its niche
Ability for Simon to add value
Big enough deal to matter (but still “crumbs” to the large food companies, at least in the beginning)
Complement the existing brands
Product that achieves premium pricing
Post acquisition he typically contracted out some or all of the manufacturing to specialized providers. He extended the product lines, often adding additional flavors. His goal was to scale up the brand, to move its products from niche health and natural food stores to more mainstream grocers and supermarkets.
Life after Hain
As Simon built Hain, competition in the natural and organic categories started to intensify. The company had also rapidly acquired a diverse set of brands and operations and in 2016 it disclosed accounting issues. This was followed by an internal accounting probe, a “year of hell” according to Simon. In 2018, the company settled with the SEC charges of improper sales practices.
Hain attracted activist investors, including Carl Icahn in 2012. In 2017, Engaged Capital took a 10% stake and succeeded in getting six directors on the board. After a couple of challenging years, Simon left the company in 2018.
“I started Hain from scratch, before my kids were born, and I was a very hands-on CEO and chairman. I did hundreds of earnings calls, had 39 manufacturing facilities, managed more than 12,000 people, and my products were in over 60 countries. I felt like I had accomplished more than I had imagined was possible, but a desire to build something new started to take root and I wanted to appease that feeling. So I said, ‘Okay. Act two.’” 2020 interview
Today, Simon has moved on to new endeavors. He is the Chairman of a SPAC called Whole Earth Brands and in 2019 he became the CEO of Aphria, a Canadian cannabis company in the midst of a turnaround. When he joined the company it was under attack from short sellers and its stock was deflating as the initial cannabis stock euphoria faded. The job has brought him back to Canada, albeit under nerve-wrecking circumstances:
“I had no idea how bad things were when I first got to Leamington. There was not a strategic plan or vision.”
“My whole strategy is to turn Aphria into a packaged goods company,” says Simon. “Cannabis goes through different channels regarding how it’s sold, but I think what is really important is building the brand and establishing quality control, so consumers trust the products and don’t revert to the illicit market.”
Recently, Aphria acquired American craft brewery SweetWater for $300 million. It seems Irwin Simon is back in his element: finding emerging consumer brands and doing deals.
More reading:
"A Dynamo in the Food Marketing Arena," New York Times
How to deal with activist investors
"The Slipstream Strategy," Forbes, 1996.
The Apprenticeship of Irwin Simon, Inc. 2002