The bankruptcy of Prima Wawona, BB #:165373 California’s largest stone fruit producer (which says it produces five times as many peaches as the entire state of Georgia), sent shocks throughout the industry.
John Boken, the company’s CEO, gave this explanation: “The business has faced significant headwinds, including increased costs and weather-related impacts, that have combined to make our existing capital structure unsustainable.”
To understand the story more completely, one might note that Dan Gerawan, who oversaw the merger of Wawona Packing Company with Gerawan Farming was ousted as CEO in 2020 and has filed a suit against Prima Wawona’s owner, investment firm Paine Schwarz. The suit contends Paine Schwarz intentionally sunk the business for financial gain.
“The loss was staggering,” reported The Business Journal. “The collective holdings of the Maine Public Employees Retirement System in Prima Wawona shed 96% of their value in five years.”
In June, the San Joaquin Valley Sun ran a story that began: “Prima Wawona, America’s largest peach producer, is financially rotting.Four years after a private equity firm merged two of the nation’s largest peach farmers into a single entity, the firm is basically worthless.”
The article prophetically noted Prima Wawona’s downgraded Moody’s credit rating to Ca status: “highly speculative and are likely in, or very near default, with some prospect of recovery in principal and interest.”
Gerawan’s suit contends that Paine Schwartz drained over $24 million in cash from Prima Wawona in less than four years. The money was paid to McKinsey & Company, a consulting company with longstanding ties to Paine Schwartz.
“Paine continued to cause [Prima Wawona] to pay millions in fees to the advisors despite obvious signs that they were either performing poorly or doing nothing at all,” the lawsuit says. It also claims that Paine Schwartz’s designees to the Prima Wawona board wanted to pay another $10 million to McKinsey that was not owed under any written agreement.
“In 2021 and 2022,” Gerawan also contends, “Paine, McKinsey, and [former Prima Wawona CEO Eric] Beringause transformed the Company from a respected and admired brand into a worthless shell with no market value other than its landholdings.”
Prima Wawona’s transitioning plan “will involve either the conversion of existing lender debt into equity ownership of the business or allow for a sale transaction to a third-party buyer via an expedited auction process.”
Without attempting to sort out truths from falsehoods in these claims, I am left with this conclusion: growers may welcome cash infusions from private equity firms, but there is good reason to doubt that such companies, if given a controlling interest, will manage the business competently or even honestly.
