Hometown Food Company – Henk Hartong III (Brynwood Partners)

“In private equity, speed to the outcome is the most important thing, and we try not to apply a lot of the traditional big company practices against our new product initiative. You'll hear the term in big CPG, stage gate, which is an item goes from concept to commercialization over five different meeting paths; it can take a year to get these things done. We don't have time for that.”— Henk Hartong III

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Creativity & Innovation · Operations & Execution · Strategy & Decision Making

DUR_ENDURING

Ship on instinct vs. year-long stage gates

“The one thing that was very interesting is it's got a few complicating things which makes the universe of potential financial sponsors less interested, because it's a trickier carve-out. We felt that we were likely competing against other financial sponsors for the deal. And we knew it was a tricky deal, because it's got a 650,000 square foot factory in Toledo, there were no people coming with the transaction at all, so we had to start from scratch. When we closed, we had no employees.”— Henk Hartong III

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Strategy & Decision Making · Business & Entrepreneurship

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Complexity scared off competitors

“One of the best ways to apply our strategy of combining operating and investing skills is to look at a business that isn't getting the operating attention that it needs, and apply whatever's needed, whether it's supply chain, manufacturing, product innovation, sales, new management. Whatever the symptom is, we look to find the cure.”— Henk Hartong III

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Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

DUR_ENDURING

Underwrite neglected maintenance not performed

“Tom Polke and I, our CEO, had a long conversation about this, because he didn't want to take pricing first. He wanted to see how the market was going to react to pricing that would ultimately be taken by the market leader. But I said, 'Look through the P&L. Pricing notification to the retailers is typically 90 days. So you announce a price increase, and then you have 90 days before it's implemented. We didn't have time in my judgment to wait.”— Henk Hartong III

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Strategy & Decision Making · Leadership & Management

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90-day lag forced action; transparency enabled acceptance

“The business was a declining business, so big part of what we were trying to determine was what was the real run rate of the business. The diligence that we went through was heavily focused on looking at the customers, the brand trends, the distribution gains, some of the key things in the financials about how they were spending money.”— Henk Hartong III

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Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Sector focus enables self-diligence

“In the five years before we bought the business, how many new products had been introduced versus the number of new products we introduced that first year we owned it, it was equal to the number of launches that they'd had in the five previous years. When you have a business that's not core to your portfolio, you're typically not doing those things.”— Henk Hartong III

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Creativity & Innovation · Operations & Execution

DUR_ENDURING

Match 5 years innovation in year 1

“We hired a CEO quickly, because we thought we needed to have one. He was somebody that didn't come from our system, it wasn't a good fit, and I don't think he lasted 60 days. I became the CEO of the company for the period of time until we hired Tom Polke. One of the lessons is you don't have to put somebody in the seat during a TSA right away. You got to put the right person in the seat.”— Henk Hartong III

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Leadership & Management · Operations & Execution

DUR_ENDURING

Don't rush CEO hire; fix fast when wrong

“The inflation for this category was really first and worst. You went through the first 12 months of the pandemic where we needed every case that we could possibly produce, to then getting into 2021 where the inflation started, the supply chain became challenging. We had to make the decision of when to price. That was really the hardest decision of the process, because typically in this business, if you're not the market leader, which we're not, you tend not to lead price increases.”— Henk Hartong III

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Strategy & Decision Making · Economics & Markets

DUR_CONTEXTUAL

Price first despite not being leader

“Brynwood was founded in 1984 with the concept of combining operating skills and investing skills together to accelerate performance. In the mid-1980s, as private equity was arriving as an industry, they thought he was out of his mind. But today, obviously that's very fashionable. We started as a generalist firm. When I joined as CEO of one of our portfolio companies, we started to sector focus around consumer products, and today we have a concentrated portfolio in the food and beverage space.”— Henk Hartong III

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Strategy & Decision Making · Business & Entrepreneurship

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Counter-positioning: operating PE when unfashionable

“The supply chain was discoordinated at the time, so being able to ship was a big part of making it more acceptable to take pricing. Our service levels in this business have been terrific, and I think that got us a long way. Ultimately, everyone is dealing with the same inflation. The big thing we were able to do while we were confronting this inflation was we were able to provide exceptional service levels, and that got us a long way with the retailers.”— Henk Hartong III

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Operations & Execution · Strategy & Decision Making

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Service levels enabled pricing power

“Our big differentiator is we're not just about providing capital. We're about providing solutions and assistance to our portfolio companies. We take the attitude that we're better working together than we are apart, and that our experience and having seen things that they might not have seen before is going to help make the business perform better. Don't run this business from behind your desk, run it from the field.”— Henk Hartong III

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Leadership & Management · Operations & Execution

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Run business from field not desk