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Amazon's purchase of Whole Foods and IPOs like Blue Apron and Instacart reflect private equity and venture capital’s interest in the food industry.

Take a Bite out of Private Equity and Venture Capital

The food and beverage industry has been extremely enticing to private equity and venture capital managers over the past few years.   When you think of food and beverage, hundreds of different products and restaurants come to mind, but in the past few years, locally sourced, natural, organic, and healthier food and restaurant choices have sparked their interest. This comes at a time where the general public is more aware and concerned about the products their families consume both at home and in restaurants.  One of the most recent and publicized merger and acquisitions in the natural and organic food and beverage industry was that of Amazon purchasing Whole Foods for approximately $13.7 billion.

Managers have also been actively involved in the natural and organic food markets as well.  Popular restaurants that individuals eat at every day are partially owned by them such as Advent and GrowthPoint Partners which have invested in First Watch and Dos Toros, respectively.   Both First Watch and Dos Toros offer fresh food and high quality customer service.  Many natural and organic food companies have had extensive growth and are generally cash flow positive, making them an attractive buy.  On the flip side, the restaurants can use the capital to open additional locations and partner with a manager that can provide strategic leadership ideas and growth strategies. 

Home delivery has hit the ground running in the food and beverage industry in the metropolitan areas.   Companies such as Delivery Hero, Instacart and Blue Apron have either raised capital or performed an IPO in 2017, and all of them have had support from venture capital firms.  These home delivery companies come in all different shapes and sizes.  Some are full service on-line supermarkets with all products you would find in a brick and mortar store, but others are specialty stores that focus on one particular area such as organic produce.   Many different organic and natural produce delivery companies have popped up over the past few years making it easy for households to get high quality produce at a reasonable price.  These specialty companies are appealing to the managers so that they can diversify their portfolios and expand into evolving sectors. 

There are many other private equity and venture capital firms that have completed deals with restaurant chains trying to provide sustainability in the quality of their foods and also home delivery platforms, but the greatest challenge for the future is finding the next successful foodie with a new idea that can win over the hearts of the public market.  As the industry continues to evolve, many fund managers still see great value in certain niches of the food and beverage industry -- seeking out high growth companies driven by the organic and health food movement continuing to grow. 

Ryan Raben is a Partner in the Financial Services Group with diversified accounting and auditing experience for private equity funds, venture capital fund, funds of funds, broker-dealers and hedge funds, as well as investment advisors.

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