Management guru Ichak Adizes claims that companies have a life cycle like humans, from birth, growth, maturity, decline and death. Consider how it worked in the case of this world famous direct mail marketer.
In 1910, a prosperous clothier and restaurant owner named Sam Rosenberg bought Bear Creek Orchard in southern Oregon’s Rogue River Valley. The orchard produced a highly-prized French hybrid pear renowned for its fine texture and flavor.
When Rosenberg died six years later, his two sons Harry and David, both Cornell-educated agriculturists, took over the family business; renamed their pear variety Royal Riviera, and changed the company brand from Bear Creek to Harry & David. For the next 66 years the Rosenberg family created a successful high quality mail order business and built one of the strongest brands on the market. In 1966, they expanded their product line from fruit to roses with the acquisition of Jackson & Perkins, a leading world supplier of new rose varieties.
Approaching maturity in 1972, the company incorporated, and in the twilight years of this family-owned and operated business the focus swung from making profits with agricultural produce to making money period. With a 1976 stock offering the company made ownership available for the first time to the public, generating capital to grow, diversify and, inevitably, attract buyers.
In January, 1984, Harry & David was bought by RJ Reynolds for $74 million.
In November, 1986, Reynolds sold its Harry & David business to Shaklee Corporation for $123 million.
In 1989, Shaklee was acquired by Japanese pharmaceutical giant Yamanouchi.
In 2004, Yamanouchi sold Harry & David to the private equity firms Wasserstein & Co and Highfields Capital Management for $253 million.
In 20 years four separate owners had grown Harry & David into a diverse, sophisticated corporate entity, grossing over $400 million annually through mail order, internet and brick-and-mortar locations. But Harry & David’s little family business, which had lasted 100 years through the Great Depression and a World War, was surrounded by aggressive new competitors, in a volatile market, and in the clutches of ruthless new owners dedicated to making as much money as possible off their new acquisition, whether or not it stayed in business.
To pay for the purchase, the new owners put up $82.6 million of their own cash and borrowed $170 million. Eight months later, they orchestrated a $245 million Harry & David bond sale, out of which they took $82.6 million to recoup their original cash investment. Several months later, they took out another $19 million in fees, assuring themselves a 23 percent return on investment, no matter what happened in the future to Harry & David.
Now strapped with the corporate equivalent of an underwater mortgage, Harry & David labored to repay their debt; maintain market share against fierce competition like Amazon, and in the face of a looming major economic downturn. In 2011, Harry & David finally caved in, defaulting on its debt, dumping its pension obligations to thousands of workers, and sliding into an assisted living program called Chapter 11.