HKW-backed Fresh Direct acquires organics provider as part of Canada expansion

HKW vice-president Tom Shaw says the competitive acquisition process for Mike and Mike's is just one indication that 'institutional investors are highly interested in' the produce distribution market.

HKW-backed Fresh Direct Produce has acquired organic fruit and vegetable distributor Mike and Mike’s Organics as part of an expansion in North America. Financial details were undisclosed.

“The goal is to continue to expand Fresh Direct as a platform and use Mike and Mike’s as the beachhead, so to speak, within that eastern Canada market,” Tom Shaw, vice-president at mid-market-focused HKW, told Agri Investor. “North America is certainly a relevant market for the business.”

Shaw said Fresh Direct’s acquisition of Ontario-based Mike and Mike’s is the third add-on investment that HKW has carried out since its initial investment into Fresh Direct in December 2018.

British Columbia-based Fresh Direct acquired Emperor Specialty Foods, a distributor of more than 1,000 fruit and vegetable items, in July 2019. It then bought Islands West, a family-owned produce, spices and vegetable distributor, in September. Both firms are also headquartered in British Columbia.

Founded in 2004, Mike and Mike’s is a non-grower distributor of organic fruits and vegetables. It also provides grocery and snack products to customers that include national chains and independent retailers from a warehouse facility it maintains near Toronto.

Canada has been a key market for Indianapolis-headquartered HKW, said partner John Carsello, who added that the firm has carried out at least 10 acquisitions across industries in the country, which accounts for about a third of its total business.

Fresh Direct’s acquisition of Mike and Mike’s was motivated by a desire to expand the company’s organic offerings and diversify its presence within Canada to avoid too heavy a concentration in its western region, said Shaw.

He added that the Mike and Mike’s acquisition came after a competitive process involving other parties that he declined to identify.

“We review a lot of opportunities in the food space – produce and distribution specifically – and it seems to be a market that institutional investors are highly interested in,” he added.

A source familiar with the deals told Agri Investor the initial investment into Fresh Direct and subsequent add-ons have been drawn from HKW Capital Partners V, which closed on $365 million in 2017.

“When we were investing in Fresh Direct out of the gate, we were not trying to predict a recession, but saying, ‘We’ve been in a long bull market. What asset classes do we want to be in if there were to be a recession during our hold period?’” Shaw explained. “We’ve identified food and food distribution as an industry that we think would hold up well in a recession.”

HKW’s investment into Fresh Direct is part of the firm’s focus on health and wellness, which is also reflected in its investment into PANOS Brands, a collection of consumer brands including dairy-free, plant-based beverage and calorie-free meal and snack offerings.