M&A: Piecing Together a Natural-Foods Empire

Deal guru Irwin Simon, founder and CEO of Hain Celestial, knows how to make mergers work.

Welcome to Irwin Simon’s Tea Party
Simon’s first deal of the 21st century was a $390 stock-swap with Celestial Seasonings, a Boulder, Colorado herbal tea brewer. The deal provided an instant infusion of $100 million a year in sales, opened new channels into mass-market stores, brought on additional management savvy and added new production facilities. Hain’s took on the tea company’s $7.8 million in debt and emerged with a new name: the Hain Food Group was now Hain Celestial. Simon, who generally keeps his deal cards close to the vest, had publicly pursued Celestial for months through informal meetings with the tea company’s chairman and co-founder, Mo Siegel. The talks got serious just before the 1999 holiday season.

Founded in 1969, Celestial had come a long way from its small-batch origins and after 30 years in operation dominated the herbal tea category. Unlike most natural and organic food products, Celestial’s forte was the mass market; sales in supermarkets and other mainstream retail outlets accounted for 80 percent of sales. This channel strength appealed greatly to Simon.

“Irwin went from nothing to a big-cap company. I would not be surprised if it continues to get bigger. Irwin has done a great job.”

Siegel struck what analysts considered an advantageous deal; his shareholder s received 1.265 shares of Hain stock for each Celestial share. Hain at the time was trading around $32. Wall Street turned thumbs down, sending Hain’s share price tumbling $4.75, to $27.63, before recovering and surging forward. The feeling at the time was that he had overpaid.

Celestial chairman and co-founder Mo Siegel was named vice chairman of the combined board, which expanded to 11 members with the addition of himself and two Celestial directors.  Celestial’s CEO Steve Hughes left “to pursue other interests,” according to the deal announcement, but veteran manager Walt Freese came on board as vice-president and general manager for the tea brand and brought most of the sales team with him.

“Irwin and I had a similar mission, which was to build the largest natural products company in America,” Siegel recalled in a recent conversation. “The combination of the two companies was
a really good opportunity to do that.”

From his perspective, Simon obtained “the most glamorous brand he had ever been involved with,” one that had achieved household-name status. In contrast, Hain’s offerings at the time were smaller and more niche-oriented, including brands like Arrowhead Mills, Nile Spice and Westsoy.

As with nearly all mergers, the blending of Hain Food Group and Celestial Seasonings took some finesse. The companies had dramatically different cultures. Simon had started out in the early ’90s buying a Kosher food company, Kineret, then bought a couple of distressed California health food brands bearing the name Hain Pure Foods, adding them to the pot. As an executive,
Simon drew from early-career stints with both Slim-Fast and, paradoxically, Haagen-Dazs. Siegel, in contrast, started out as a pastoral entrepreneur, leading a bunch of teenage buddies who brewed natural teas from hand-picked herbs; no amount of business success could eradicate his laid-back Colorado style.

Siegel remained vice chairman for two years, helping supervise the post-merger integration. During that time Siegel fended off one of Simon’s signature post-merger moves: operation
consolidation.

Siegel recounts: “I dug in my heals and so did Irwin. We fought over that. I saw Irwin’s point: You consolidate shipping in order to save money. I just didn’t think that would work” given Celestial’s particular manufacturing issues. Siegel left soon thereafter, citing the rigors of travel and his desire to cut back from 70-hour work weeks. Simon went ahead with consolidation.

Reminiscing over the company’s history—the Celestial founder still lives in Boulder, remains active in the industry and still holds Hain Celestial stock—Siegel recalled the 2000 merger as pivotal in Simon’s relentless expansion. “It’s not easy building a company to this size,” Siegel says. “Irwin went from nothing to a big-cap company.“ (Its current valuation is $6.4 billion.) “I would not be surprised if it continues to get bigger. Irwin has just done a great job.”

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This article can be found in Chief Executive magazine, September/October 2015 issue, page 36.


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