Bird is the word

by Bryan Salvage
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With hog-centric décor and walls adorned with old and new photos of hogs, farms and smiling hog producers, visitors at The Maschhoffs’ corporate headquarters in Carlyle, Ill., can’t help but realize the company has deep roots in hog production. But last month, feathers flew when officials from what is regarded as the largest family owned pork production company in North America announced its acquisition of GNP Company, a chicken-processing company and its subsidiaries, based in St. Cloud, Minn. Terms of this acquisition were not disclosed.

Leading the combined company is Jason Logsdon, who was appointed CEO of The Maschhoffs in 2012. Prior to assuming the leadership role, he served as the company’s CFO since 2003 and was also named executive vice president of product supply and operations in 2010. The GNP Company acquisition was spearheaded by Steve Fray, The Maschhoffs’ chief financial officer, and supported heavily by Gregory Billhartz, executive vice president, general counsel, and Troy Van Hauen, executive vice president, human resources.

“We’re excited about this new partnership,” says Logsdon, who has a bachelor’s degree in agricultural economics and previously worked at Merrill Lynch. “By joining forces, we can leverage our core strengths, capitalize on growth opportunities and create new value in the marketplace – thus, making the combined company stronger than each would be separately,” he adds. “Over time, the companies will share best practices, leverage select strategic shared resources and benefit from the balance-sheet strength of an organization that is diversified across multiple proteins.”

GNP Company’s chicken business and The Maschhoffs’ pork operation will operate as separate business units. GNP Company’s headquarters will remain in St. Cloud and its leadership team plus nearly 1,700 employees and 350 producer-partners will be retained. The Maschhoffs’ sales for calendar-year 2013 were approximately $825 million. Its sales have grown at a compounded annual rate of more than 25 percent per year since 2002. GNP Company sales were about $400 million in 2013.

“We intend to create cross-functional teams to identify opportunities to leverage our size and efficiencies in traditional areas like insurance, legal, procurement of raw materials and risk management,” Logsdon says. “But we’ll also look for non-traditional synergies in areas such as R&D, leadership development platforms and tools plus LEAN and Sigma implementation.”

Unusual partnership

The Maschhoffs is the nation’s largest independent, family owned swine operation, with approximately 208,000 sows and associated market hog production in nine states and is the fourth-largest pork-production company in the US. Most of its business is in farrow-to-finish hog production. It employs more than 1,200 employees and networks with 450 independent farm operations. Through a wholly-owned subsidiary, it also sells branded pork products to retailers, processors and foodservice operators under the Maschhoff Family Farms label.

“Our primary [hog] customers are packers and processors,” Logsdon says. “We’ll produce approximately 4.8 million market hogs in 2013, which makes up approximately 4.5 percent of the US market.”

GNP Company produces the Gold’n Plump, Just BARE and Sunny Roost brands of chicken products. Many of its producers have raised chickens for GNP Company for multiple generations.

The Maschhoffs is owned by fifth-generation family members Ken Maschhoff, chairman of the board; his wife, Julie, vice president of public policy and public relations; Ken’s brother Dave Maschhoff, senior consultant; and his wife, Karen, purchasing lead. All four serve on The Maschhoffs board of directors. The company partners with Midwest family farmers to produce enough pork to feed more than 16 million consumers annually.

Mike Helgeson, GNP Company CEO and third-generation leader, was named CEO of The Maschhoffs’ new chicken business unit. Don Helgeson, son of founder E.M. Helgeson, was GNP Company’s chairman of the board and served as CEO for more than 35 years. His son, Mike, has worked in every area of the family business since he was 12 years old before being named CEO in 1993.

This transaction provides the capital and long-term resources GNP Company needs to grow to meet increasing sales demand for its products under its brands, Helgeson says. GNP Company didn’t seek a suitor because it was against the financial ropes. To the contrary, it is on strong financial footing and has been experiencing solid growth, he adds.

“We achieved record sales in 2013 and we’ve also been doing well from a profitability standpoint – enjoying five consecutive years of profitability,” he says. Looking for a strategic partner was all about growing GNP Company’s market share and productivity. “Our facilities are essentially at capacity – with more demand on the horizon,” Helgeson says, “and we were looking for a partner to grow the business with us in the future.”

While executives at The Maschhoffs are excited about diversifying its business model, acquiring the GNP Company is more about that company’s people, management team, brands, culture of innovation and the niche that GNP Company has in the upper Midwestern region of the US, Logsdon says. “Importantly, it’s a great fit of core values between two organizations,” he adds.

Anatomy of the acquisition

Logsdon says both companies have mutual friends in the agribusiness industry who introduced them about five years ago. “We have always admired GNP Company from afar,” he says.

“We’ve been aware of The Maschhoffs for a number of years through mutual business contacts,” Helgeson adds. “As we went through this process, they learned of this opportunity. And the more we got to know each other, we found we had a very strong fit in terms of values and culture. Both companies have a strong commitment to animal welfare, sustainability, working with team members and grower partners and supporting communities we work and live in.”

This acquisition will benefit The Maschhoffs in several ways. “It provides us a separate growth platform to deploy some of our free cash flow,” Logsdon says. “This allows us to reduce the growth rate of our pork business from that 25 percent annual growth rate down to a more manageable growth rate [such as 10 percent], which allows us to redouble our efforts on quality, service and operational execution. Strategically, we believe GNP Company will help us to be a better supplier of pork to our pork customers. We believe we can learn a lot about how to work with our customers to better optimize the entire supply chain rather than just parts of it. In our opinion, the chicken industry has done significantly better than the pork industry in that regard.”

Logsdon and his management team are bullish on the growth of lower-cost protein. “We’ve watched chicken dominate pork from a demand perspective over the last 50 years, meaningfully growing per capita consumption. Frankly, we’re excited to have chips on both sides of the table now.”

Acquired assets

GNP Company’s Cold Spring, Minn., integrated complex includes a production plant primarily for retail tray-pack production that processes about 1 million birds per week. Its Arcadia, Wis., integrated complex also operates a plant that processes 1 million birds per week, primarily producing deli and foodservice product lines. Both complexes include a hatchery and feed mill and are supplied by family farm partners. GNP Company also operates a production facility in Luverne, Minn., that produces value-added chicken products, such as pre-seasoned breasts, using products produced at its other two plants.

“Our plan is to grow the Cold Spring and Arcadia facilities over time,” Helgeson says. “As we develop our plans, we continue to adopt automation where we can implement it in our operations. I expect brick-and-mortar expansion, as well.”

GNP Company is no stranger to in-plant innovation. In 1999, it completed an expansion at its Cold Spring plant that included installing new, patent-pending technology to produce the market’s first full line of fresh, fixed-weight, scannable, tray-pack chicken. In 2011, it completed a waste-water treatment upgrade incorporating state-of-the art equipment.

One thing Logsdon admires most about GNP Company is its ability to innovate from a product and operational perspective. “GNP Company has developed a tremendous business culture with great people,” he adds. “Mike [Helgeson] is a leader. He has a strong vision for where he sees the business. He’s deeply connected to the culture and his people. He understands the competitive positioning of GNP Company – he’s carved out a very nice niche for GNP Company with their brands.

“We’ve also spent a tremendous amount of time with the two gentlemen who report to Mike – Tim Wensman, executive vice president of customer processes, and Steve Jurek, executive vice president of operations and administration,” Logsdon continues. “We have the utmost respect for them. They are strong leaders who are deeply in tune with their business.”

Logsdon also admires GNP Company’s ability to automate and reduce waste in their operations, to develop and grow their Gold’n Plump and Just BARE brands plus market and create consumer loyalty to their products.

GNP Company has long embraced a culture of continuous improvement. It adopted LEAN and Six Sigma to reduce waste from its processes. It also incorporates critical quality measures in its processes. “We identify key attributes that are important for our customers,” Helgeson explains. “Our processes then measure that using process behavior charts to determine our performance levels.”

One continuous improvement project recently completed at GNP Company’s Cold Spring processing plant was in its breast debone department. Efforts were made to improve product quality to reduce the amount of product that was being downgraded to a “B Grade” category. This was achieved through a collaborative effort that improved mechanical processes and product handling. Corrections were made, appropriate metrics and feedback were put into place and training was conducted to sustain improvements. The improvement to product quality increased profitability in this department by $388,734.

GNP Company’s employee suggestion program yielded 1,595 suggestions in 2012 and 512 were adopted for a total savings of $468,978. GNP also paid $69,892 to team members for participating in this program that year. By mid-December 2013, GNP had received 1,555 suggestions, and 434 had been adopted.

One employee suggestion was recently initiated at GNP Company’s Luverne processing plant. Bags of unsealed product occasionally fell off a conveyor onto the floor, so a team member suggested adding a guide rail to restrain the bags and prevent products from falling. Annual savings based on product not having to be discarded was $1,900.

Addressing trends

Another thing that attracted The Maschhoffs to GNP Company is the growth opportunities they have with existing and potential new customers. “We see the macro-trends driving pork and chicken as being very similar,” Logsdon says. “We like the tail winds the industry has from a growing global demand base for protein, especially in developing countries.”

From a consumer perspective, Logsdon sees a product trend toward a higher standard of natural and minimal. On trend is GNP Company’s Just BARE brand of products – as there are no antibiotics and no animal byproducts used during the rearing process. “We have an aging population that’s eating very differently, smaller portion sizes…and a growing share of ethnically diverse consumers in the US,” he adds.

Logsdon also sees consumer segmentation in pork and poultry. “At times, we hear the debate of whether we should feed the world or produce an ultra, high-quality, premium product,” he says. “In our mind, it’s ‘all of the above’. Both segments are growing. We’re seeing more emphasis placed on meat quality and eating quality at the premium end of the market.”

Happy together

Although employees of newly acquired firms may be apprehensive about their future, reaction from GNP Company team-members and growers about its acquisition has been very positive, Helgeson says. “Jason and I recently visited all of our locations and spoke directly with our team members about the acquisition,” he adds. “Our people understand why we’re doing it, they see the opportunities for future growth and they are very excited to partner with a company like The Maschhoffs.

“One benefit of being privately held is you can take a longer-term perspective on the business, as we have historically,” he adds. “This is also The Maschhoffs’ view. Taking a long-term view is important for the future growth and success of the company.”

Challenges await

Controlling future growth while diversifying into a new line of business will be a major challenge. “The challenge is to utilize this opportunity to sharpen our focus within our particular business units and not lose focus,” Logsdon says. “Keeping the delineation [between the two business units] while still tapping into existing synergies will be challenging. The opportunities are to accelerate the pace of innovation while growing our market share with existing and new customers. Regarding GNP Company, we look to continue to invest in the strategic strengths of the business – people, product innovation, growing and handling live animals, in-plant automation and brand marketing.”

In addition to the acquisition of the GNP Company, The Maschhoffs experienced two other highlights during 2013. One was upgrading its live hog production biosecurity, both from a process and asset-investment perspective, to deal effectively with the escalating porcine epidemic diarrhea virus (PEDV) challenge in the US. “Our team, [led by Tim Laatsch, executive vice president, production operations, and Dr. Bradley Wolter, COO] was able to accomplish significant upgrades in biosecurity prior to the widespread proliferation of PEDV in the industry,” Logsdon says.

The other highlight of the year was although The Maschhoffs wasn’t the winning bidder recently for AgFeed USA, which produces and markets hog and swine in the US, its team did a great job as a stalking-horse bidder. “Ultimately, we bid exactly what we wanted and positioned ourselves for the opportunity to acquire GNP Company,” Logsdon says. “Sometimes losing is winning and we’re extremely excited about the opportunity that we have with GNP Company.”

One major positive about the acquisition for GNP Company is business will continue as usual. “Our chicken unit will continue to focus on chicken; their pork unit will continue to focus on pork,” Helgeson says. “We’re excited about the opportunity and the future ahead for our team members and growers and working together with The Maschhoffs.”

Although some insiders might feel further protein diversification may be in the cards for The Maschhoffs, Logsdon puts the company’s future into perspective. “We see so much opportunity in pork and chicken that our focus will remain there for the foreseeable future.”

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