Beverly Hills-based Butterfly Equity is looking to crack the egg market.
 
The private equity firm, which wants to consolidate the fragmented organic egg production industry, has made its first acquisition toward that goal.

Butterfly announced in early May that it had purchased a majority position in New Hampshire-based Pete and Gerry’s Organics, one of the nation’s biggest producers of organic free-range and pasture-raised eggs.
 
Adam Waglay, Butterfly’s co-founder and co-chief executive, said other targets in the premium egg industry — mostly in the geographic belt that extends from the Midwest to New England, as well as the Southwest — are on the firm’s radar.

Terms of the transaction were not disclosed, but Butterfly said Pete and Gerry’s CEO Jesse Laflamme and Canada-based institutional investment firm British Columbia Investment Management Corp. have become minority owners in the egg producer.  

Pete and Gerry’s generates more revenue than Austin-based Vital Farms Inc., the second-largest organic and premium egg producer. Vital Farms, a publicly traded business that runs a network of more than 200 family farms, generated $214.5 million in revenue in 2020, according to a filing with the Securities and Exchange Commission.

“We’re much larger than that,” Waglay said of Pete and Gerry’s, which is based in Monroe, N.H.

Butterfly, which has about $2 billion in assets under management, raised more than $521 million in its first fund and has assembled six transactions in the food and agriculture space since its founding in 2016. The firm is headed to $3 billion in managed assets for the year.

More buying power is coming.

Butterfly, according to SEC filings, is working to raise another $750 million for a second fund that is likely to hit $1 billion through oversubscriptions by the end of 2021.
 
Waglay keeps his eyes on the eggs.
 
“We are excited about this space. There is a lot of opportunity to help them grow and get bigger,” he said.

Last year, 96.9 billion eggs were produced in the United States, according to the United Egg Producers, a Georgia-based cooperative of egg farmers representing the ownership of about 95% of all the nation’s egg-laying hens.

The number of hens housed in conventional cage environments is declining as some egg producers transition to cage-free eggs. That’s Butterfly’s bread-and-butter target market.

At the end of 2020, 28% of all hens were in cage-free production, up from 14% in 2016 and 4% in 2010. Roughly two-thirds of U.S. hens must be in cage-free production by 2026 to meet projected demand, according to the federal government’s Agricultural Marketing Service.

As of March, organic and cage-free shell egg production accounted for 29.3%, or 96.1 million hens, of the total U.S. flock. Of this, 6.8% are organic, or 22.3 million hens, and 22.5% are nonorganic cage-free, or 73.8 million hens.

A dozen organic and cage-free eggs without antibiotics or pesticide contamination can cost three times as much as a dozen traditional white eggs sold at the supermarket.
Waglay doesn’t have just eggs on his mind. He also is building a similar business with carrots.
 
Waglay and co-founder and Co-CEO Dustin Beck call the strategy their “seed to fork” approach to investing in food across agriculture, aquaculture, food and beverage products, food distribution, and foodservice.  

The longtime friends crossed paths briefly at Goldman Sachs & Co. in 2006 before Waglay moved to work on consumer-oriented merger and acquisition deals for New York-based investment banking firm KKR & Co. Inc.

Beck moved to Austin, Texas-based investment firm Vista Equity Partners before landing a senior job with Sawtelle-based Riot Games Inc., where he launched the video game publisher’s esports business.

In 2019, Butterfly bought Bolthouse Farms, a vertically integrated food and beverage company focused on carrots and other healthy offerings, from Campbell Soup Co. for $510 million.