Middle market businesses holder Compass Diversified Holdings (“CODI”) announced earlier this week that it will acquire Fresh Hemp Foods, which operates under the brand name Manitoba Harvest. Subject to usual closing requirements, the deal is set to be finalized within the next 45 days. According to CODI, the company’s price tag totaled C$132.5 million and included working capital and other adjustments to be made upon closing. The deal marks an exit for Avrio Capital, who made a Series A investment in Manitoba Harvest in 2009.
CODI is also set to obtain an initial 87% equity ownership in Manitoba Harvest. Mike Fata, CEO of Manitoba Harvest, Clif White Road Investments, an existing shareholder, and certain other management team members will re-invest alongside Compass. Lazard Middle Market will act as the exclusive financial advisor to Manitoba Harvest.
Manitoba Harvest has made its success through branding hemp-based food products with a positive and healthy-driven ethos. Tracing back to the early 1990s, Manitoba Harvest was born out of one man’s journey to recapture his health and shed excess pounds. Fata weighed over 300 pounds when he was a teenager and claims to have found his way to a healthy and balanced lifestyle through hemp-based foods. “Through hemp foods I learned about essential nutrients – EFAs (essential fatty acids), fiber, and essential amino acids,” writes Fata. “Basically starting the hemp food industry had its challenges, but they were all worth it.”
Many nutrition experts encourage the incorporation of hemp in a balance diet due to its balanced level of omega-3 and omega-6 essential fatty acids and the high levels of protein and fiber in the seed. In fact, hemp’s protein profile is comparable to many types of meat, dairy, fish, and poultry, making it an excellent dietary protein source for vegetarians and vegans.
According to its website, its products are some of the fastest growing in the hemp-food market and ranked among the fastest growing companies in the natural food market. The company sources its product ingredients directly from Canadian farmers. In 2014, roughly 65% of all seeded acres of farmland in Canada were seeded for Manitoba Harvest. The company prides itself on quality as well. Currently, Manitoba Harvest is the first and only hemp food producer to conduct a comprehensive in-house quality control test on all of its product ingredients at various stages of the production cycle.
Today, roughly 7,000 retail locations throughout the United States and Canada carry Manitoba Harvest’s products, netting the company roughly C$37.9 million in revenue for the year 2015. Manitoba Harvest generated net revenues of approximately C$44.9 million and an adjusted EBITDA of approximately C$6.4 million for the last twelve months ending May 2015, representing year-over-year growth of 28.5% and 59.4%, respectively. The company generated Adjusted EBITDA for the six months ended May 31, 2015 of approximately C$5.0 million. These are impressive figures considering that the company only manufactures and sells hemp foods.
According to Fata, “As our market continues to rapidly develop and consumers embrace the nutritional benefits of our products, with the added support of [CODI], we will be in a strong position to accelerate our long-term growth potential.”
Hemp has grown in popularity over recent years and is showing promise across many different sectors. The wonder-seed has countless applications, including food, clothing, paper, rope, building materials, animal bedding, plastic, paint, and fuel to name a few. Manitoba Harvest refers to the seed as “the green buffalo,” which accounts for the fact that every part of the plant can be used or repurposed in some way.
Hemp is a sustainable crop that begins seeding in late May or early June. The plant grows close together with large, broad leaves for approximately 120 days. To many farmers’ delight, the crop grows in a variety of soil types and climates, and can grow robustly in tight spaces. Some reports suggest that hemp can improve overall soil health and enables farmers to plant food crops immediately after harvesting a crop of hemp, eliminating the often necessary fallowing period thats needed for soil regeneration.
Environmentalists are a fan of the crop due to its natural resistance to most pests and its ability to grow with the vigor of a common backyard weed. As a result, the plant has little need for pesticides, fungicides, and herbicides and can reach successful yields using less water than most crops. Beyond its growing capabilities, the plant has shown promise when it comes to environmental cleanup. In the wake of Chernobyl, hemp was used to extract pollutants and toxins from groundwater and soil in the area. Hemp naturally absorbs CO2 during the photosynthesis process. As a result, the plant has a zero-carbon measurement from day one.
“We are pleased to capitalize on our balance sheet strength and add Manitoba Harvest to our family of niche leading businesses,” said Alan Offenberg, CEO of CODI. “Consistent with our previous platform acquisitions of leading branded consumer businesses, Manitoba Harvest possesses several qualities critical for success. Specifically, the company is a leader that operates in a large and expanding marketplace, has strong and growing cash flows, a passionate consumer following, an experienced management team and compelling expansion opportunities.”
Compass Diversified Holdings owns and manages a diverse portfolio of established North American middle market businesses. According to the company, each of its current subsidiaries is a leader in its respective niche market. In each of its deals, CODI maintains a controlling ownership interest in the subsidiary in order to maximize its ability to influence long term cash flow value and generation. Providing both debt and equity capital for subsidiaries, and contributing to their financial and operational flexibility, CODI uses the cash flow it generates to invest in long-term growth of the company and to make cash distributions to its shareholders.
CODI’s subsidiaries include many household name brands, like CamelBak Products, American Furniture Manufacturing, Ergobaby, and SternoCandleLamp.
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