Arbor Investments, which has backed food brands that include baked goods company Gold Standard Baking and deli meats producer Columbus Manufacturing Inc., is armed with a fresh $1.67 billion for investments in the food and beverage industry.
The Chicago-based firm has wrapped up fundraising for two new funds focused on the sectors, bringing in $1.5 billion in investor commitments for its private-equity fund, Arbor Investments V LP, and $168 million for its second mezzanine debt fund, Arbor Debt Opportunities Fund II LP. Shannon Advisors placed both.
Arbor targets investments in food and beverage brands, as well as businesses that serve the sector, such as packaging and distribution companies. The firm takes controlling stakes in midmarket companies, typically investing $100 million to $250 million per platform, according to co-founder and Chief Executive Gregory Purcell . Arbor uses its mezzanine funds to provide subordinated debt to companies it backs through its private-equity funds.
Mr. Purcell sees several forces driving additional investment opportunities in the sector, including an increase in corporate carve-out opportunities from large public companies seeking to divest brands that have gotten stale.
“The large publicly traded consumer packaged goods [companies] are re-evaluating their portfolios and saying, ‘What doesn’t fit?,’” he said.
Meanwhile, he also sees potential deal flow from family- or founder-led companies whose owners want to sell their businesses to lock in favorable capital-gains tax rates and avoid the challenge of increased capital expenses required to thrive amid the coronavirus pandemic.
Mr. Purcell said Arbor’s willingness to invest in capital expenditures often has been a critical part of its strategy. As an example, he cited the instance the firm spent some $62 million to fund new production facilities for Columbus Manufacturing, which helped the company dramatically increase its output and revenue.
In addition to its 15 investment professionals, Arbor also leans on a team of around 11 operating professionals and another seven functional experts to assist its portfolio companies after it has backed them. The firm’s operating partners provide guidance on strategy and growth initiatives, while the functional experts help in areas such as regulatory compliance, food safety, marketing, human resources and information technology, Mr. Purcell said.
Arbor has a lengthy history of identifying promising companies in the food and beverage sector that later generate huge windfalls. In each of its first three funds, a single portfolio company ended up returning all the invested capital in the fund. Such winners include frozen pizza supplier Great Kitchens Inc. from the firm’s debut fund, Gold Standard Baking out of its second fund and Columbus Manufacturing from its third fund.
Although Arbor has raised successively larger amounts with each fund, Mr. Purcell said he’s confident the firm can produce similar gains for its fourth buyout fund, which closed with $765 million in 2016.
“In Fund IV, I think we’re sitting on anywhere from one to three potential fund returners,” he said.