Healthy food-focused fundraising markets could favor a deal-by-deal approach over fund investments in the upcoming 18 months, says the chief investment officer of Manna Tree Partners.
Given investors’ focus on liquidity during the covid-19 pandemic, firms attempting to raise funds from large institutions may face a more challenging environment than those targeting more nimble groups, such as family offices, according to Ross Iverson.
“That probably poses a better option – for other firms or other people to maybe be raising on a deal-by-deal basis over the next 18 months if they are really trying to be out there raising, versus raising for a fund in this environment,” Iverson said.
Vail, Colorado-headquartered Manna Tree closed its debut fund on $141.5 million at the end of April. The firm invests in companies involved in primary production, processing and distribution of healthy food, as well as related consumer and retail companies. It targets businesses with at least $10 million in annual revenue and necessary equipment already in place, which are EBITDA-positive or will become so within 12 months.
Iverson said the firm has not changed its requirements, thought it does expect that recent disruptions could dictate that it sift through more deals to find opportunities. The CEO noted that healthy food-focused companies which Manna Tree has encountered in the weeks since coronavirus took hold have fallen into three broad categories.
The first of these are companies that had already started raising money before the spread of the virus and have decided to continue fundraising, despite current uncertainty, because they need to maintain growth and liquidity.
A second group Iversen described includes companies in strong financial positions that had been planning to raise money to scale their businesses and are now opting to take a pause.
“What we are finding is that those founders are being very smart right now,” said Iverson. “They know that if they rush the fundraising in the next six months, people are going to be looking for deals on valuation, so those firms are approaching it well from that standpoint.”
The third group of companies, he said, is comprised of those either minimizing the impact of covid-19 on their businesses in hopes of maintaining existing valuations, or those with an uptick in grocery sales that has created a need for upward revision.
“In private equity, typically what happens at the beginning of a crisis in the first six months is that everybody is praying they get the valuation they thought they were going to get,” Iverson said.
“After the deals fall out of bed, it takes that amount of time [six months] for the bankers to get realistic and to coach the CEOs back into what the market is. We’re really ramping up to look at a high level of deal activity in Q4.”