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BFD Expert Voices - Retail Deals

BFD Expert Voices

Private label food sales grew in 2022 and are expected to do so again in 2023, which could lead to a smörgåsbord of M&A for dealmakers, according to a report by investment bank William Blair.

Why it matters: Bankers, strategic acquirers and PE firms, are hungry for transactions, Richard writes.

The big picture: While private label has experienced growth for years, inflation and the specter of an economic downturn is accelerating consumer adoption.

Details: A number of companies are hiring financial advisers to prepare for a sale when the timing is optimum,  Chu-An Lee, William Blair's director of consumer and retail, tells Axios.

There's still fragmentation and an opportunity to consolidate, with plenty of cash to put to work.

Divestitures and PE investment, including the acquisition of minority stakes, will also be on the menu.

Between the lines: In addition to offering value, private label food products are viewed differently today than they were a decade or more ago, with many offerings now seen as equal or of a superior quality to their branded counterparts.

Grocery chains such as Trader Joe's and Aldi have led the way in changing shoppers' attitudes, Lee says.

Some of the conditions that led to lower M&A activity in 2022, such as price discovery and challenging capital markets, may be muted this year.

Private label manufacturers also worked through many of the supply chain hiccups during the depths of the pandemic, when they had a difficult time keeping store shelves stocked, Lee notes.

Yes, but: Private label food products have struggled to translate online, with Amazon scaling back its offerings last year, for example.

Online retail formats are not optimized for private label comparison, Lee explains.

Catch up fast: One of the headline transactions in 2022 was Treehouse Foods' sale of a large portion of its meal preparation business to Investindustrial for $950 million.

The enterprise value was a multiple of 13.6X the unit's adjusted EBITDA.

Other deals last year include Bain Capital-backed Dessert Holdings' acquisition of Dianne's Fine Desserts and AUA Private Equity Partners' sale of Trufood to Mubadala Capital.

State of play: Publicly-traded companies in the category in addition to Treehouse Foods include Post Holdings, which owns 8th Avenue Food & Provisions.

Post bought Treehouse Foods' private label cereal manufacturing business in 2021.

Organic food company SunOpta, a maker of plant-based foods and beverages, sold a stake to PE firms Oaktree Capital Management and Engaged Capital.

Also noteworthy are private label snack business Shearer's Foods, which is controlled by Ontario Teachers' Pension Plan, and Teasedale Latin Foods, which is owned by PE firm Truarc Partners.

Editor’s note: This story has been corrected to reflect that Bain Capital-backed Dessert Holdings acquired Dianne’s Fine Desserts (not that Bain Capital sold Dessert Holdings to Dianne’s Fine Desserts).

1 big thing: Buyers circle private labels

Illustration of a waiter holding a silver serving tray featuring a bag of groceries

Longshore Capital Partners has backed the tie-up of Blue Wheel, a digital commerce agency, and Retail Bloom, an e-commerce marketplace service provider, to form an omni-channel digital commerce agency, Kimberly writes.

Why it matters: Together, the companies will oversee more than $1 billion in e-commerce revenue under management.

What's happening: Brands often have to deal with multiple parties and visions when it comes to their advertising and how that may affect their sales, giving them limited visibility into how one end of the business may be impacting the other, Blue Wheel CEO Eitan Reshef tells Kimberly.

With this merger, you get “communication that does not occur in different silos,” Reshef says.

How it works: The new entity will help brands with everything from advertising to fulfillment. Blue Wheel mainly focuses on marketing and demand generation, while Retail Bloom focuses on supporting brands' orders and sales on e-commerce marketplaces.

“You don't want to have multiple agency partners, where somebody's doing creative, and somebody's doing your PVC, and somebody's doing your marketplace business,” Retail Bloom President Tom Sesti tells Kimberly.

The transaction will allow the company to understand all the points in the customer’s journey, Reshef says.

It will give customers a “clear line of sight into how you're improving your performance over those different moments,” Reshef adds.

Zoom out: The new company’s ability to flex in various capacities will be useful in a slower economy because they’re able to execute the same services all in one place, Reshef says.

“There is a general feeling that vendor consolidation will happen during these types of periods. And we feel like we're right there to help support [brands] in so many different ways.”

What’s next: The company is in the process of integrating its businesses from a front-end marketing and advertising standpoint.

It will also work to combine its technology, some of which it has developed independently over time, so that it can build tools that will be useful to customers.

2. The BFD: Longshore backs e-commerce tie-up

Illustration of a shopping bag with the handle becoming a smiley face. 

🛏️ Serta Simmons Bedding, the Georgia-based mattress maker owned by Advent International, has filed for Chapter 11 bankruptcy protection, our colleague Dan Primack writes.

There's no niche industry that's caused private equity more pain than have mattresses, going all the way back to the infamous "burning bed" deal in the 1980s.

Advent bought the company in 2012 via a $3 billion deal, and later added DTC mattress seller Tuft & Needle. It later restructured some of its debt, via a transaction that led to credit lawsuits.

The prepackaged bankruptcy filing includes $125 million of debtor-in-possession financing and another $125 million once it exits Chapter 11.

🎲 Facing fan backlash, Hasbro’s Wizards of the Coast says it will refrain from implementing some of the recently leaked, upcoming changes to a license that allows fans and game makers to use elements of Dungeons & Dragons in their own spinoff games, Axios’ Stephen Totilo writes.

The uproar has some fans questioning their loyalty to the D&D franchise and could spur an exodus of creators to other rivals.

This also comes at a time when Hasbro is planning to sell eOne, a media company it acquired in 2019 for about $4 billion, as it tries to cut costs and focus on “fewer, bigger, more profitable brands.”

3. Retail therapy

Illustration of a therapy couch with a pillow made of money.

• Mad Mobile, a Tampa, Fla.-based POS modernization platform for retail and restaurants, raised $20m from Eastward Capital Partners. https://madmobile.com/ 

• Rumin8, an Australian developer of livestock feed to cut methane emissions, raised $12m new seed funding led by Breakthrough Energy Ventures. https://rumin8.com/ 

• SYKY, a Web3 fashion platform, has raised $9.5m in Series A funding led by Alexis Ohanian’s VC firm Seven Seven Six. Brevan Howard Digital, Leadout Capital, First Light Capital Group and Polygon Ventures participated. https://axios.link/3kGsi5O 

• House of Blueberry, a web3 fashion startup, has raised $6m in seed financing led by Makers Fund. Everblue Management participated. https://axios.link/3R3Sgfp 

• Pilon, a Singapore-based supply chain financing startup, raised $5.2m. Wavemaker Partners led and was joined by Octava and Polaris Kin. https://axios.link/3JamThs 

• McWin acquired a majority stake in L'Osteria, an Italian restaurant chain based in Germany, for around €400m. https://axios.link/3kyEFk9 

• Strava, the fitness tracking app valued by VCs in late 2020 at $1.76b, acquired Fatmap, a London-based 3D mapping app that raised around $28m from backers like Strava, InMotion Ventures, 83North, Azimut Libera Impresa, ACF Investors and Tornig. https://axios.link/3WsR5Yc

• Ridgemont Equity Partners acquired Worldwide Produce, an LA-based food distributor, from Sole Source Capital (which retains a minority stake). http://www.produce.com/ 

• Thrive Capital, the New York-based VC firm led by Joshua Kushner, sold a passive minority ownership stake to an investor group that includes Henry Kravis, Bob Iger, Jorge Paulo Lemann, Xavier Niel and Mukesh Ambani. https://axios.link/3Ht4bAv 

4. Retail transactions

• Dollar Tree’s executive chairman Rick Dreiling will expand his role to also assume the CEO post at the end of the month. CEO Mike Witynski is stepping down and leaving the company on Jan. 28. https://axios.link/3XVq9RS 

• Perella Weinberg Partners promoted Anthony Giuliano and Cory Hill to managing directors. https://pwpartners.com/ 

• AlixPartners, the consulting firm, has brought on Justin McFarlane as a partner and managing director in its global retail practice. He rejoins the firm after serving in various corporate positions over more than a decade, including as Macy’s chief innovation officer. https://www.alixpartners.com/ 

5. It's Personnel

Happy Tuesday, Retail readers. Plenty of news today, so let's dive right in.

📺 What we're watching:  Kim gave in to the hype of HBO Max’s “The Last of Us.” And if a good zombie show is your cup of tea, it lives up to it. 

✏️ Big thanks to editor George Moriarty and copy editor Lisa Hornung for today's edits.

January 24, 2023

1 big thing: Buyers circle private labels