COMPOSTABLE packaging pioneer Joe Frankel has cemented his standing as one of Scotland’s most successful entrepreneurs of recent years by clinching a deal to sell the company he founded to a US corporation.
The sale of Edinburgh-based Vegware to Novolex looks likely to have valued at the firm at tens of millions of dollars.
It recognises Mr Frankel’s achievement in building a firm that is a global leader in an industry of huge importance.
Vegware has developed a range of eco-friendly products that help cut the waste potentially associated with the ever-increasing popularity of takeaway food and outdoor catering.
The company’s products are made from plant-based materials that can be composted with food waste. The range includes cups, cutlery and packaging used for takeaways.
The products provide a way of avoiding sending huge quantities of single-use utensils and the like to landfill.
“Vegware is an excellent company and its addition to Novolex is an exciting step to growing our global compostable products footprint,” said Stan Bikulege, chairman and chief executive of Novolex.
He said the deal would allow Novolex to maintain its momentum in supporting brands that meet society’s expectations for sustainable products. It owns the Eco-Products brand.
Novolex is backed by US private equity giant Carlyle. This must see significant potential in the Vegware business, which Mr Frankel founded in 2006.
Mr Frankel went into business after gaining a first in maths and a PhD from the University of Edinburgh.
He first got the idea for the kind of product Vegware sells when tasting yogurt at a farmers market in San Francisco with a novel spoon made from a resin that was derived from potato and corn. He was on secondment at the International Computer Science Institute in Berkeley, California.
Vegware was started in 2006 after Mr Frankel invested £3,000 savings in supplies of resin and now sells to more than 70 countries.
In the latest accounts for the company Vegware posted a profit of £2.4m on sales of £36.4m, although the fallout from the coronavirus crisis impacted on trading.
The price Novolex paid for Vegware was not disclosed. It would not be surprising for a firm operating in the kind of high growth market that Vegware serves to command a valuation of around ten times annual earnings.
In the accounts for the year ended January 31, Vegware directors noted: “The sustainable packaging market is set to grow significantly as a result of continued new green legislation, with the European Parliament voting for a ban on some key single-use plastic products.”
They added: “Vegware’s demand is also being driven by big brand names and manufacturers looking for innovative ways to reduce their environmental footprint.”
Mr Frankel said he was delighted to have agreed a deal that he thinks will help to maximise the potential of Vegware.
The company will become part of a group with international sales and manufacturing capabilities that it could tap into as it looks to move on to the next level.
“Some acquisitions are about cost cutting or synergies; this is not one of those,” Mr Frankel told The Herald. “This is absolutely a growth play.”
He added: “I’m in, the team’s in.”
The deal is not expected to result in job losses at Vegware, which employs around 80 people in Edinburgh currently.
The company will remain headquartered in Edinburgh and continue to operate under the Vegware brand.
It currently uses firms around the world to manufacture its products.
Mr Frankel said the deal represented a natural evolution of a working relationship he struck up some years ago with Ian Jacobson, who runs Novolex’s Eco-Products arm.
Asked the secret of Vegware’s success, Mr Frankel noted that he had spent years in the world of academic research specialising in speech recognition. This left him comfortable with the idea of entering unfamiliar areas.
“In research you don’t know the answer before you start something. The notion that you might know nothing was something that did not phase me,” said Mr Frankel.
He added that research work also helped him to acquire discipline and the ability to break complex problems down into manageable components.
After leading Vegware through the slump triggered by the global financial crisis of 2008, Mr Frankel won backing for the firm from the Bradenham Partners private equity operation.
Novolex has headquarters in South Carolina. The business increased its presence in the UK and Europe significantly through the acquisition of the Waddington Group in 2018.