Only Candy-Eating Rats Survived Private Equity’s Necco Takeover
(Bloomberg) -- If the world isn’t already in enough flux, consider this sad fact: For the first time ever, Halloween trick-or-treaters may have a hard time getting their hands on Clark Bars or Mary Janes this year.
New England Confectionery Company (Necco), the Massachusetts-based candy manufacturer behind a slew of iconic brands dating to the 19th century, shut down after filing for bankruptcy. The good news for patient fans is that Clark Bars and Mary Janes, as well as the popular Sweethearts, will return over the next two years under different companies. But how America’s oldest candy manufacturer reached this end shows again the difficulty of sustaining a popular consumer brand.
The tale contains familiar ingredients: Bad management. Excessive debt. Changing tastes. And bankruptcy after a decade of ownership under private equity owners including Ares Management LP. Add in one more stomach-churning item -- hordes of rats on the factory floor.
“Everyone saw it coming, it was just a matter of when and how,” said Jim Greenberg, co-president of Union Confectionery Machinery, whose family business supplied machinery to Necco for almost a century.
Necco largely founded the candy industry in the U.S. in 1847 when a pharmacist named Oliver Chase built a little machine that would crank out lozenges. That gave birth to the thin and multicolored Necco Wafers whose recipe and flavoring remain the same today, for better or worse. Soon came Sweethearts -- stamped with messages like “Be Mine,” “Miss You,” and “Love Me.”
Necco mostly thrived over the next 150 years, building or acquiring other best-selling brands, such as the Clark Bar, Haviland Thin Mints and Mighty Malted Milk Balls.
The decline started around 2003 when management built a $130 million, 825,000-square-foot plant in Revere, Massachusetts. It ended up being too big. And it came as Americans were shifting away from sugar, said Beth Kimmerle, author of the book Candy: A Sweet History.
The family sold the business to investment firm American Capital Ltd (ACAS) for $57 million in 2007. Things only got worse. In the decade that followed, Necco sustained more than $150 million in losses, according to a lawsuit by Harold Murphy, the trustee later assigned to its bankruptcy. Murphy alleged that ACAS extracted money from Necco and piled on debt.
ACAS said that the claims have no merit and that the company tried to turn Necco around.
“The claims filed by the bankruptcy trustee against ACAS and various others materially misstate important facts and mischaracterize the history that led up to the bankruptcy filing,” said Michael Bernstein, the attorney representing ACAS in the suit, which is still pending.
Management also sharply cut costs, including money for sanitation, according to several workers. They said monthly visits by exterminators grew sporadic and wild rats started taking over the factory.
Francesco D’Amelio, a former factory worker on the maintenance team, recalls catching 112 rodents in one weekend this past August. In the past, he said he saw bathrooms with no toilet paper and using water instead of unavailable chemicals to sanitize kettles that were used to cook the candy.
“I wouldn’t eat the candy -- nope, just because of what I’ve seen,” he said.
ACAS finally sold itself and the Necco business in 2017 to Ares Management. Los Angeles-based Ares sold Necco’s real estate to an investment firm that required Necco to pay $2.5 million in rent annually. Creditors forced Necco into bankruptcy in April.
Necco eventually ended up in the hands of Round Hill Investments LLC, which is owned by Dean Metropoulos, a billionaire investor famous for reviving brands like Hostess Twinkies, Pabst Blue Ribbon, Bumble Bee Tuna and Chef Boyardee.
“We were all praying that if Dean Metropoulos would take it, he would rebuild it and bring the business back,” D’Amelio said.
But Round Hill stunned workers by announcing in July that it was ceasing operations permanently. The Greenwich, Connecticut-based firm said it had no choice after a Food and Drug Administration report found widespread rodent activity at the plant. One bag of corn flour with a hole that had rodent-like scratches had been covered with a sticker label.
Round Hill sold off the brands, some to Spangler Candy Co., which plans to relaunch Necco wafers next year and Sweethearts for the 2020 Valentine season, according to a company statement. Pennsylvania-based Boyer Candy plans to resume production of the Clark Bar in the next six months, the Associated Press reports.
Today all that’s left of the New England Confectionery Company is the legacy of those brands. And the hordes of rats that once scurried inside its Revere campus.
©2018 Bloomberg L.P.