An Ecuadorean healthy snack food company has swallowed a Culver City seller of exotic nutrient-dense “superfoods” such as Brazil nuts and goji berries.
Essential Living Foods Inc. was purchased out of bankruptcy for $1.5 million by Terrafertil Holdings Group, according to U.S. Bankruptcy Court records. The transaction, announced this month, will allow Essential Living, which sells its products to Whole Foods Markets and Costco Wholesale Corp., to continue operating and will provide it with funding to keep growing, parties involved in the sale said.
Kipp Stroden, Essential Living’s former chief executive and a co-founder of its former majority shareholder, BeOn Holdings Inc., said the sale “came as a result of having a difficult relationship with one private equity investor, which sued the company and made it difficult for the company to raise money. We wanted to create an optimum liquidity event for Essential Living.”
The deal gives Terrafertil, which sells its products in Europe and Latin America, and generated sales of around $70 million last year, a foothold in the United States as the market for superfoods blooms.
Essential Living declared bankruptcy after it was sued by Pegasus Capital Advisors, a Greenwich, Conn., private equity firm that alleged mismanagement of the company. The lawsuit hindered Essential Living’s ability to raise capital, according to court documents.
The health food company, which had eight employees, reported in its bankruptcy filing that gross revenue declined last year to $6.44 million from $7.6 million in 2015.
That roughly 15 percent decline came as the industry overall grew.
The class of foods categorized as “superfood” is broad and unscientific, and industry data is inexact. But the number of new foods and drinks containing the words “superfood,” “superfruit,” or “supergrain” worldwide increased 202 percent between 2011 and 2015, according to a report last year from market research firm Mintel Group. Thirty percent of those products were launched in the United States in 2015.
Terrafertil, co-founded by brothers David, Raul, and Daniel Bermeo with their cousins Jonathan and Ramon Bermeo, placed a stalking-horse bid on Essential Living in December and the deal closed Jan. 13.
Both Terrafertil and Essential Living were launched around 2004 and the companies say they look to support farmers in Latin America and other regions from which they source products.
Terrafertil sells “goldenberries,” a small orange fruit with high iron content grown in Ecuador and Colombia, and trail mixes.
“We grew up together,” CEO Stroden said of Essential Living and Terrafertil. “They’re spearheading the growth of the superfood movement of food as medicine. People are wising up to the fact that you are what you eat.”
Stroden added that Terrafertil wanted to make Essential Living a $100 million-plus superfood brand.
Terrafertil spokeswoman Manuela Phillips said in an email that her company’s co-founders will be leading the Essential Living brand into the future.
Farm fresh
Farmer Christopher Daugherty founded Essential Living in 2004 as an importer of organic pecans from Peru and then began expanding his products to other foods consumed by the Incas, Stroden said.
Stroden and BeOn, a mix of individual, private equity, and family office investors, bought out Daugherty’s stake in the company in 2009. Stroden became chief executive in 2011.
Essential Living started selling branded products in 2010, part of a strategic decision to broaden its appeal.
“We started to see a lot of competition around bulk commodity,” said Stroden. “Larger companies got involved.”
Shifting from selling ingredients to branded products is a strategic move for people building a company as they position for a sale, said Mark Rampolla, managing partner at Powerplant Ventures, a Manhattan Beach venture capital firm specializing in plant-based food companies.
Companies in fast-growing markets such as superfoods trade for multiples of two to eight times sales, he said, while companies selling ingredients trade for a multiple of five to eight times Ebitda. That makes the $1.5 million price a bargain.
BeOn sold a 13.6 percent stake to Pegasus in 2013, according to the lawsuit Pegasus filed in 2015 against Stroden and BeOn’s other directors.
Pegasus alleged that the management team withheld information and Stroden was mismanaging the company. In their response, the directors rejected all of the allegations and said that Pegasus filed the lawsuit to try to buy Essential Living after a failed hostile takeover attempt.
Essential Living said in its bankruptcy filing that Pegasus had agreed to dismiss the lawsuit. However, as of last week a status conference was still scheduled for March 23 in New York Supreme Court.
Representatives of Pegasus didn’t return a request for comment.
Defending against the lawsuit drained Essential Living’s resources and the company got a loan from creditor Gerber Finance Inc. in June 2015, the company said in its bankruptcy filing.
Fruitful deal
Although it tried finding a buyer, no deals went through and the company filed for Chapter 11 protection on Dec. 1 of last year. In its filing, the company reported assets of less than $2 million and $6.8 million in liabilities, including an unpaid principal balance of about $1.1 million due Gerber.
Terrafertil made a stalking-horse bid Dec. 15 to buy Essential Living’s assets, including accounts receivable, trademarks, inventory, and product formulas and blends. The deal closed a month later.
Terrafertil has room to grow Essential Living’s brand in the United States, Stroden said.
“Essential Living as a brand has traction and visibility,” he said. “I think (Terrafertil) will look for all opportunities in the U.S.”
The larger company’s backing will allow Essential Living to bloom, according to Powerplant’s Rampolla.
“One of the main reasons that small to medium-sized companies fail to grow is that they’re undercapitalized,” he said. “Just the ability to bring additional capital can make a difference between a company’s ability to scale.”
Terrafertil will give the smaller company better access to its more than 400 farms in South America, Stroden said. The buyer might also sell Essential Living’s products in Europe and Latin America.
Conversely, buying Essential Living allows Terrafertil to take advantage of the relationships the U.S. company has cultivated with retailers, Rampolla said.
“Although Essential Living is not huge, it has good distribution,” he said. “It has access to Whole Foods, conventional retailers, Costco. That’s not an easy thing to just get.”
