Welcome to the week. We are tracing why Gary Erickson rejected a $120 million offer for Clif Bar and borrowed heavily to buy out his partner, a Milton liquor store asking $725,000, and the Federal Reserve's upcoming interest rate decision.
WHY DID GARY ERICKSON TURN DOWN $120 MILLION FOR CLIF BAR?
On April 17, 2000, Gary Erickson was an hour away from selling Clif Bar to Quaker Oats for $120 million. Clif Bar had annual sales of about $40 million, and Erickson’s 50% ownership stake was valued at $60 million under the proposed deal. His business partner wanted to sell, and the paperwork was nearly complete. But Erickson went for a walk, reconsidered the deal, and decided to keep the company. Twenty-two years later, Mondelez International acquired Clif Bar for $2.9 billion in cash.
The business had started with a problem Erickson encountered during a 175-mile bicycle ride in 1990. He had packed six energy bars but could barely stomach another one toward the end of the ride. Convinced he could make something better, he spent six months developing a recipe in his mother's kitchen. He named the product after his father, Clifford, and launched Clif Bar in 1992. The company shipped the first 30,000 bars that February and generated $700,000 in first-year sales, primarily through bicycle and outdoor retailers.
Sales grew to $1.2 million the following year and continued climbing. By 2000, Clif Bar generated about $40 million annually. At the time, larger food companies were acquiring energy bar brands, including Nestlé's purchase of PowerBar. Erickson and his business partner, Lisa Thomas, considered Quaker's offer. Thomas wanted to take the money, while Erickson was uncomfortable with giving up control of the business. He also told employees the acquisition would not change the company, a promise he realized he could not keep.
Turning down Quaker's offer did not resolve the disagreement between the two owners. Thomas still wanted to sell her 50% stake, leaving Erickson to find enough money to buy her out. Erickson and his wife, Kit Crawford, spent seven months negotiating her exit and eventually secured approximately $60 million through high-interest bank loans. The borrowing amounted to roughly 1.5 times Clif Bar's annual revenue at the time.
Clif Bar continued expanding under private ownership. Erickson and Crawford developed a business model that considered employees, communities, the environment, and financial performance. In 2010, they established an employee stock ownership plan (ESOP), giving employees a collective 20% stake. The company also invested in manufacturing, opening a bakery in Twin Falls, Idaho, in 2016 and completing a $10 million expansion of its Indianapolis bakery in 2019.
In June 2022, Erickson and Crawford agreed to sell Clif Bar to Mondelez. The acquisition closed in August and included the CLIF, LUNA, and CLIF Kid brands. Mondelez reported $2.9 billion in total cash payments, including $2.6 billion in purchase consideration (net of acquired cash) and $300 million for unvested employee shares. The National Center for Employee Ownership estimated that almost 1,300 ESOP participants would share $580 million from the sale of their collective stake.
The agreement also gave the sellers the opportunity to receive up to $2.4 billion in additional payments if Clif Bar exceeded specified revenue and profitability targets in 2025 and 2026. Mondelez initially estimated this performance-based payment at $440 million.
CHANGING HANDS
Milton liquor store asks $725K on $80K EBITDA
Asking price: $725,000, including $500,000 of inventory and $175,000 of FF&E.
Annual revenue: $1,663,000
Cash flow: $407,435 SDE
EBITDA: $80,000
Asking multiple: 1.78x SDE, 9.1x EBITDA
Real estate: Leased at $11,916 a month, through May 2031
Employees: 2 part-time
Seller support: Two weeks
The store leases 7,000 square feet in a big-box shopping center in Milton, North Fulton County. The listing cites 16,000 vehicles a day and average household income above $186,000 within five miles. The owner is retiring and recently cut the price by $75,000. Buyers need at least $600,000 in liquid capital, and the seller may offer minimal financing.
Translation, if you own one: inventory and fixtures make up $675,000 of the price. That leaves about $50,000 for the name, lease, and customer base, so a buyer pays close to the store's asset value. A large store in an affluent neighborhood offers room to expand inventory, but more products also tie up more cash in stock. Before buying, examine whether existing sales justify the rent and whether additional inventory can generate enough profit to support the investment.
THE WEEK AHEAD
The Federal Reserve's policy committee meets on October 27 and 28, with its interest rate decision scheduled for Wednesday afternoon. At its September meeting, the committee voted unanimously, 12-0, to raise the federal funds rate target range by a quarter percentage point to 3.75%-4.00%. Banks use this rate as a benchmark for overnight lending. The Fed said economic activity was expanding at a solid pace, while inflation remained elevated. The October meeting will not include updated economic projections.
The bank prime loan rate, a benchmark for many small business loans, was at 7.00% on October 19, according to the Fed's H.15 release. Prime typically moves alongside the federal funds rate. For a business carrying a $1 million variable-rate loan, a quarter-point change would increase or reduce annual interest costs by about $2,500, assuming the rate change passes through in full and the loan balance remains unchanged.
On Thursday, October 29, the Bureau of Economic Analysis will release its advance estimate of third-quarter GDP. Its September 30 report showed that the U.S. economy grew at an annualized rate of 2.2% in the second quarter, while first-quarter growth was revised to 2.5%.
COMING ON WEDNESDAY
A former management consultant who acquired a 138-year-old Navy bell manufacturer generating $250,000 in annual revenue, and the economics of running a specialized manufacturing business dependent on military contracts.
