At the end of Q2 2023, TreeHouse Foods Inc. (NYSE: THS) completed the acquisition of a Northlake, Texas coffee office/industrial facility from Farmer Brothers Company (NYSE: FARM) along with their non-Direct Store Delivery (Direct Ship) business. The facility is located across I-35W from the Texas Motor Speedway, not far from the Fort Worth Alliance Airport. While specific details were not disclosed, it is known that the ~$100mm transaction included $30mm of Farmer Brothers' inventory*. Financing was sourced through TreeHouse's revolving line of credit.

Farmer Brothers' relationship with TreeHouse stems from serving as a bulk ground coffee supplier for TreeHouse's single-serve pods and ready-to-go beverages. As part of the transaction, TreeHouse will retain 180 employees to support the facility's operations. Farmer Brothers will lease back the facility's office space to serve as their headquarters with their remaining Direct Store Delivery operations transitioning to Portland, Oregon.

The Northlake facility was entirely built-to-suite in 2017 by Stream Realty, who also facilitated Farmer Brothers' 1031 exchange, leaseback, and purchase option execution upon completion. Being built-to-spec, the 545,000 SF LEED-certified facility was designed with coffee and tea in mind. The facility is segmented into three distinct areas of operation:

  • 85,000 SF | Corporate Offices
  • 200,000 SF | Roasting and Manufacturing Facility
  • 260,000 SF | Distribution Facility

The asset is located near a number of other industrial facilities, not surprising given its proximity to the Alliance area. As a bonus, the parking lot could be a great spot to tailgate for a race!Source: Google Maps

Given the level of ground-up customization, a strategic buyer within the industry was ideal to get the deal completed. Farmer Brothers' 2017 10-K filing indicates capital expenditures of ~$60mm between the land and construction of the facility. While the book-value of assets sold to TreeHouse was not disclosed, it is certainly not a stretch to think the net $70mm (backing out inventory) sale price would be difficult to realize with a non-strategic buyer, let alone the value realized from the inventory. Additionally, TreeHouse's financial strength likely assisted in closing the deal in a timely manner: as of 3/31/2023, their $500mm revolving credit facility had a healthy $428.7mm in undrawn capacity.

Deverl Maserang, President and CEO of Farmer Brothers, spoke to the value of finding TreeHouse as a buyer:

We’re delighted to have achieved a rapid close to this transaction and are already applying the proceeds to strengthening our balance sheet and preparing for future growth with a clear focus on our DSD business. In TreeHouse, we found a perfect fit with a valued customer and partner who will provide a good home for our existing direct ship customers and transitioning team members.

Farmer Brothers used the proceeds of the transaction to pay off a $47mm term loan as well as a partial paydown of its asset-based debt. The partial paydown has allowed them more flexible debt covenants. Additionally, the divestiture of the Direct Ship business will allow them to improve margins and drive growth in their Direct Store Delivery business.

TreeHouse, on the other hand, will be able to expand their existing business while simultaneously increasing efficiency by bringing part of their supply chain in-house. Steve Oakland, Chairman, CEO, and President of TreeHouse spoke to the benefits of the transaction:

Acquiring the Northlake, Texas facility enables us to drive greater category depth through green coffee purchasing, roasting, grinding, flavoring and assortment – and represents an exciting step forward as we strengthen our strategic capabilities as a focused, private label snacking and beverages leader.  By becoming more vertically integrated in coffee, we are better positioned to drive mutually profitable growth for our customers and deliver greater value to our shareholders.

Nine-figure transactions between public companies are probably more complex than what most real estate investors will be party to. However, the necessity of finding the right buyer for a specialty asset is universal. Niche assets, especially when both owner-occupied and built-to-spec, can present a challenge when brought to market. By including the Direct Ship business in the transaction, Farmer Brothers was able to present a mutually beneficial deal to a strong buyer and close rapidly.

Specialty assets can come in all shapes and sizes. Be it a portfolio of hot dog carts, a historic theater, or a coffee and tea manufacturing facility, finding the right fit is essential. Making use of industry contacts and/or leveraging the assistance of a broker experienced in the niche can identify strategic buyers. Strategic buyers, such as TreeHouse in this instance, can realize synergies with their existing businesses through the transaction. Through these synergies, the resulting business will be worth more than the sum of its parts, allowing the strategic buyer to justify a higher purchase price than others, therefore maximizing sale proceeds.

* It is worth noting that, per Farmer Brothers' most recent SEC 10-Q filing, "coffee brewing equipment parts" are considered inventory while the equipment itself is capitalized as PP&E. Although this made up a minority of their inventory as of 3/31/2023, the $30mm of inventory included in the transaction is not necessarily all coffee and tea.