YoCream to be sold for $103 million

Nearly 75 percent of the Portland-based frozen dessert company’s sales came from selling softserve to Costco stores.

“We knew that if we didn’t grow it, we would lose them,” said Terry Lusetti, YoCream’s director of investor relations. “They would start to cut us back.”

Speaking from Wisconsin where he was attending a Costco opening, Lusetti said not only did that not happen, but a strategy targeted around a massive frozen yogurt trend led to the company’s acquisition Tuesday by French dairy products giant Danone for $103 million.

Danone will pay about $39.82 per share, which YoCream said represents a 38.5 percent premium over the company’s 60-day average stock price.

YoCream (PINK SHEETS: YOCM) will be a wholly-owned subsidiary, with its existing management, led by CEO John Hanna, remaining in place.

It now becomes part of a company that includes Dannon and Activia yogurt and Evian water among its brands.

“The company has been exploring various opportunities for continued growth for some time,” Hanna said in a news release. “Joining the Danone Group represents a natural progression in our corporate achievement to provide healthful live and active-cultured frozen yogurt to consumers in the US and abroad.”

The deal, expected to close by Dec. 28, may never have happened had YoCream not made a series of strategic moves four years ago.

To grow, the company had to make smart investments, so it borrowed $7 million to invest in new equipment that allowed it to expand production capacity.

“You can’t get a big account if you don’t have production capacity,” Lusetti said.

It also removed itself from the NASDAQ small-cap market and shifted to the Pink Sheets exchange.

Though the company caught heat for moving to a less-prestigious exchange, the move saved the company an estimated $400,000 a year related to Sarbanes/Oxley compliance costs with NASDAQ, Lusetti said.

The company then took a look at what was the fastest-growing product category in its space: soft-serve frozen yogurt.

YoCream added a tart-flavored yogurt to its portfolio at a time when vanilla was its top-seller, followed by chocolate and a rotation of various berry flavors.

“Now tart outsells chocolate,” Lusetti said. “It was a dramatic shift in the business.”

The frozen yogurt industry’s success has been fueled by independent shop owners who, using a self-service model, have allowed consumers to pick among dozens of flavors at a time.

In addition to giving consumers choices, it allowed for more wholesale distribution for YoCream.

“All of those coming together, we’re at the crescendo,” Lusetti said. “If you look at profitability and revenue growth, it’s all there.”

In 2009, the company recorded $50.7 million in sales, an 18.1 percent increase from the previous year, when sales grew more than 52 percent. It was its fourth-straight year of double-digit growth.

Net income reached a record $5.6 million, up from $4.4 million in 2008.

Through three quarters this year, sales are up 12.1 percent to $41.7 million, while earnings have increased 6 percent to $4.8 million.

YoCream sells a range of frozen desserts, but the driving factor in the growth has been sales of the company’s frozen yogurt, which grew 50 percent in the third-quarter, followed by quarters of 52 percent and 31 percent growth.

Lusetti doesn’t see it slowing down.

The Danone acquisition will give YoCream access to international production capacity, allowing it to grow those markets faster.

And the frozen yogurt trend in the U.S., which originated mostly in the southwest quadrant of the country, is beginning to expand eastward.

“You can’t say we’ve ridden (the trend). We’ve driven it,” Lusetti said. “It goes as fast as I push it. And I’m pushing it.”