Misfits Market to acquire rival online grocery service Imperfect Foods

Misfits Market has agreed to acquire rival online grocery company — and seller of "ugly produce" — Imperfect Foods.

Why it matters: The deal is expected to double the size of Misfits' business, CEO Abhi Ramesh tells Axios, to about $700 million in annual revenue, which is expected to grow to $1 billion within the next 12-18 months.

• He also expects the company to become profitable "shortly" after it completes its yearlong integration of the two businesses.

Details: Misfit declined to share how much it's paying for Imperfect Foods, but the all-stock deal will see most of the latter's investors roll over into the new company.

• Misfits was valued at $2 billion last fall when it raised $225 million in a round led by SoftBank.
• Imperfect Foods was last valued reportedly at more than $700 million in early 2021.

Backstory: The two companies have casually known each other for years, but began discussing a potential investment a couple of months ago as Imperfect Foods attempted to raise new funding, according to Ramesh.

• The conversation eventually settled on an acquisition given the large overlap in the companies’ visions and complementary business operations. Imperfect, for example, has a large network of delivery vans while Misfits outsources its logistics.
• Imperfect Foods recently closed its warehouse in San Francisco and laid off about 50 employees — a move Ramesh says was unrelated to the impending deal.

The big picture: "Not only do I see more acquisitions in our future, I also generally think this space is going to be super acquisitive," predicts Ramesh, pointing to less available venture funding for grocery delivery and consolidating consumer spending.

• Misfits is also closely watching grocery delivery service Instacart's impending IPO and says a public listing of its own will eventually be on the horizon post-integration, though no specific timing has been decided.

The intrigue: While inflation and the labor shortage have impacted the business via costs like hiring and fuel and packaging costs, Misfits has avoided some of the rising prices since it sources its food supply from products traditional grocery stores reject (like misshapen vegetables and mislabeled packaged goods), Ramesh says.