Investors are drooling over food companies, pushing their valuations higher and turning up the flame on the IPO market. That has two local financial firms specializing in food companies getting ready for a feast.
Creo Capital Partners in Westwood is raising a new fund to boost its bundle of food businesses and roll them up for a potential IPO. And West L.A.’s Trinity Capital, an investment bank that advises on food and beverage and restaurant transactions, did 32 deals last year with a total value of $2 billion – one of its biggest years since the firm opened in 2000 – and said that it is even busier in 2014.
One factor fueling the appetite for food companies is that conglomerates such as Swiss giant Nestlé often find it easier to buy an innovative product than create it themselves. With interest rates at historic lows, they can borrow cheaply to make an acquisition.
Also, given the soaring success of food IPOs such as Denver fast-casual chain Chipotle Mexican Grill Inc. (its stock is up more than 1,600 percent since its 2006 market debut), investors don’t want to miss out on the next must-have item or hot restaurant.
“There’s a mad scramble both in product innovation as well as the majors trying to figure out who’s going to win and who they’re going to gobble up,” said Kevin Burke, a managing partner at Trinity.
Rob Holland and Gregory Bortz co-founded Creo in 2005 without any specific intention of getting into food businesses. Their first investment was in frozen-food company Oh Boy, which ended up being appropriately named – it was a massive turnaround that required the finance guys at Creo to leave the corner office and go into the kitchen.
“We went in and literally ran the business,” Holland said. “I was wearing a hair net.”
Even though it was hard work to get that company in the black, Holland and Bortz fell in love with the industry and worked up an appetite for more food businesses.
“The reality is, and we can admit this today, was that we had bitten off more than we could chew,” Holland said. “But it had a very happy ending because it led us to the food industry.”
Creo has invested in 14 food companies, mainly frozen-food businesses and food service companies, and still owns 12 that it’s combined in Flagship Food Group. Creo hired two veteran industry executives as managing partners to run Flagship at home and abroad: Gary Lim in North America and Russell Maddock in the United Kingdom.
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