SunOpta hunts plant-based add-ons following Oaktree share exchange

Oaktree-backed SunOpta is planning acquisitions that either build on its established oat milk production capacity or allow it to absorb a bigger plant-based beverage brand.

A source familiar with the Nasdaq-listed healthy food and beverage company told Agri Investor plant-based toppings, creamers, powders and oat derivatives are among related markets potentially of interest to SunOpta.

“We wouldn’t want to get into plant-based meat – it’s just really not what we do. It has to be within the same knowledge-set, the same end-customer dynamics and the same R&D overlap where we can come up with new products that overlap with some of our other experience,” the source said.

“Some of these tangential things can either go public themselves or we can incubate them, we can make their products, we can take equity in the brands. It’s like a little Rubik’s cube now, figuring out how we want to grow, both organically and in-organically.”

In mid-February, Oaktree elected to exchange all of the Series A preferred SunOpta shares obtained in its 2016 investment of $85 million into common stock at $7 per share. SunOpta’s stock closed at $15.84 per share the day of Oaktree’s February 17 exchange, after reaching a low of less than $1.50 per share in late 2019.

Not included in the exchange was the $30 million in preferred equity financing Oaktree and a group of investors provided to SunOpta in May, in part to support general liquidity in the aftermath of covid-19.

The February exchange left 19 percent of the company under the control of Oaktree. In SunOpta’s statement, the managing director and co-portfolio head of the firm’s special situations group Matt Wilson said the transaction marked an “expected and hoped for evolution” of an investment, which Oaktree has no current intention of reducing or exiting in the foreseeable future.

“No one was really talking about oat milk four and five years ago, but we were already talking about it and knew that because we were big in soy and almond milk, we had the similar assets to really do oat milk and put a big bet on that,” the source said. “We directionally focused on it and that’s played out well.”

The source said that in addition to SunOpta’s strong earnings growth, investor interest in the area has been supported by activity surrounding higher-profile plant-based food and beverage names such as Califia Farms, Beyond Meat and especially Oatly, a Blackstone-backed Swedish oat milk producer that announced its plans for an initial public offering in January.

“Right now, whether it’s through the SPACs or other things, people are very focused on growth and are talking about revenue multiples as a real valuation metric for the first time in a long time on some of these smaller brands. You are also seeing some smaller brands that are able to get public,” the source said.

SunOpta announced in January an expansion of plant-based food and beverage production capacity at a facility in Allentown, Pennsylvania that it said followed three other “large projects” carried out in the fourth quarter of 2020 to increase production.

“Oat milk will continue to gain share relative to dairy and other things. There aren’t many people that know how to manufacture the stuff and have the capabilities,” the source said. “We don’t have to put our name on the label, we just benefit from the end-market consumption.”

SunOpta’s effort to concentrate on plant-based beverages has also involved asset sales, including a $66.5 million sale of its specialty and organic corn and soybean business to AMERRA Capital Management-backed Pipeline Foods in early 2019. In late 2020, SunOpta sold international ingredients company Tradin Organic to Euronext-listed agricultural products distributor Amsterdam Commodities for €330 million.