Platinum Equity Carveout Experience, Expected Growth in Organic Milk Market Fuels Horizon Investment

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The organic dairy market is expected to grow because of rising demand and other factors.

In an interview shortly after Platinum Equity closed on Horizon Organic, the largest USDA-certified organic dairy brand in the world, Managing Director Adam Cooper cited that trend.

"Broadly speaking, the milk industry is in secular decline, but premium, organic milk products show moderate growth because of the health-conscious categories in food and beverage."

Earlier this year, Platinum Equity acquired a majority interest in Horizon Organic from Danone. The deal also included the Wallaby brand, an Australian-inspired Greek-style yogurt made with organic milk and premium ingredients.

"Horizon Organic is an iconic name in dairy that is well-recognized and beloved by consumers," Platinum Equity executive Louis Samson said after the April closing. "The brand has earned a reputation for quality and innovation that is unmatched in the industry. We appreciate Danone's confidence in our ability to build on that legacy and support Horizon Organic's growth as a standalone company."

Financial terms of the deal were not disclosed, although the deal is structured as a joint venture where Danone retains a minority interest.

Platinum Equity has decades of experience acquiring and operating global businesses that have been part of large corporate entities. Earlier this year, the firm closed on Kohler Energy, an investment partnership with Kohler Co. In recent years Platinum Equity has also acquired businesses from firms like Ball Corporation, Caterpillar, ConAgra, Emerson Electric, Ingersoll Rand and Johnson & Johnson.

In the case of Horizon Organic, Platinum Equity adds a company with a recognized name among consumers.

"Horizon's been in my house, it's something we all raised our kids on," Cooper said. "It's an iconic brand with amazing brand recognition in the consumer market. The opportunity to acquire the market-leading brand coupled with the complex transaction dynamics and meaningful operational lift made us feel like it could be a Platinum deal."

Samson and Cooper provided additional details about the investment.

(Questions and answers have been edited for length and clarity).

Q: Why did Platinum do this deal?

Cooper: It's a complex carveout, an area where Platinum has great experience. It's clearly a well-known brand. We also like the food and beverage space when we can get them at attractive values. When Danone announced it wanted to exit the fluid milk business, we decided the business interested us.

Q: Why the food and beverage space? Platinum Equity's current portfolio includes Farnese Vini (wine), Biscuit (cookies) and Iberconsa (shrimp)?

Samson: Food and beverage is a relatively stable category. Businesses tend to be recession-resistant so the downside is not as extreme. People have to buy food. Even with COVID, which was a major shock to the economy, food and beverage remained relatively stable.

Q: Speak to Platinum Equity's experience with carveout transactions with large corporate sellers, specifically the firm's ability to negotiate joint ventures.

Samson: Our experience suggests that corporate sellers can benefit from a structure that allows for a partial sale at the outset of their divestment process, with the opportunity to deliver incremental value by participating in the upside we can create. An example is the Ball Metalpack partnership with Ball Corporation, which became a successful outcome for all stakeholders. There are multiple examples throughout our history.

Q: Why did Danone divest? Why were Horizon Organics and Wallaby on the market?

Cooper: Danone is a huge food and beverage company, and Horizon came to them through a larger transaction in 2016. Fluid milk is just non-core to Danone, and Wallaby is a small organic product for them. Fluid milk has very low growth prospects. Danone is focused on deploying their resources and capital toward their higher growth and margin products.

Q: Describe Horizon Organics' market position.

Cooper: The company is the market-leading organic milk producer in the U.S. They have about a 40% - 45% market share. It varies between 40% and 45%, depending on time of year and the sourcing of organic milk.

Q: What are the challenges with creating a standalone business with Horizon Organics?

Cooper: From a transaction documentation perspective, it was very complex to negotiate. And the next few years will be a tough lift. The company's manufacturing, marketing and transportation/logistics functions were largely co-mingled with Danone, so there's a lot that must be done to get this business carved out and operating as a standalone business.

We need to move milk-producing capacity that's currently produced at Danone sites to other locations. On the back end, these products are stored in warehouses, loaded on trucks and taken to customers in the same trucks. We have to set up our own transportation and logistics functions to deliver products to customers in the most efficient manner. There are heavy-duty complexities associated with that. And remember these products are heavy and perishable.

Q: Why does Platinum Equity seek out these types of transactions?

Samson: If anything, we get more excited when we see that complexity. We aren't intimidated by size or complexity. We tend to think of these transactions as giving us a competitive advantage because we have the operational bench, we have the functional experts, we have the expertise and lots of experience. It's an approach that works across multiple categories, multiple spaces.

Q: Are there any headwinds associated with this deal?

Cooper: It's incumbent upon the company to continue to market the product and continue to show consumers the value proposition in premium products. The other headwind really is that organic milk supply is constrained. Unlike the endless supply of conventional milk, organic milk is relatively limited. It's expensive to farm from the feed to production. As a company, they need to work with the milk supply base to expand production and continue to differentiate and drive the value proposition of premium milk to drive top line growth.

Q: With some of the negative attention the dairy industry receives, is there an ESG story with Horizon Organic?

Cooper: Horizon works with farmers to minimize the impact milk production has on the environment. Also from an ESG perspective, Horizon takes a 360-degree approach to ESG. The company believes it's an important differentiator from a commercial standpoint because it's important to customers. It's not just what they're doing relative to those things in the market, but it also puts the burden on the company to consider the standards it maintains as it pertains to its corporate governance, operations, value chain, and stakeholders. The approach creates accountability across the stakeholder universe and requires ongoing transparency with measures of performance across all relevant standards. It's also very focused on the employees, making sure the company is cognizant of mental health, employees' financial health and making sure there are opportunities for growth in a safe working environment. I was intrigued when I learned just how deeply this operating philosophy was embedded in the culture at Horizon. These things are important to consumers, the company and its employees, so here's another case where doing good can be good for business.

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