Avrio Capital sees windfall in Manitoba Harvest’s sale to U.S. private equity firm

Agtech venture firm Avrio Capital expects to see an outsized return on its investment in a Canadian natural foods producer following the company’s sale to a U.S. private equity firm this week.

Fresh Hemp Foods, better known as Manitoba Harvest Hemp Foods, was bought on Monday by Compass Diversified Holdings, the mid-market acquisition platform of The Compass Group, a private equity investor based in Westport, Conn.

Winnipeg’s Manitoba Harvest, which manufactures a range of branded hemp food products retailed across North America, sold for $132.5 million.

With the deal’s closing, Compass assumed an 87 percent stake in the company. The remaining ownership was taken by CEO Mike Fata, other managers, and PE firm White Road Investments. Manitoba Harvest joins a family of some 10 industrial and branded consumer businesses in which Compass holds the controlling interest.

For Avrio, the deal provides an exit that adds to a recent series of lucrative portfolio realizations.

Avrio led Manitoba Harvest’s Series A round in 2009. The firm reinvested in subsequent years, including in 2012 when it syndicated with White Road. Managing Director Aki Georgacacos told peHUB Canada the company’s sale will give Avrio a nine-fold return on its invested capital.

Aki Georgacacos
Aki Georgacacos, Managing Director, Avrio Capital

Avrio backed Manitoba Harvest at a key moment in its development. Founded in 1998, the same year industrial hemp was legalized in Canada, the business gained strong traction in the past decade as its hemp snacks, beverages and other products won favour with consumers interested in healthier, protein-rich eating. During Avrio’s period of investment, sales expanded over 500 percent.

Today, Manitoba Harvest is “the leading platform in its category of the super seeds market” which is “a major area of global growth,” Georgacacos said. Its niche focus on healthy snacks “fits well in the food product line” of Compass, a firm with sufficient capital depth to “grow the brand aggressively.”

“Compass was the right buyer for the company at the right time,” he said.

The sale of Manitoba Harvest comes on the heels of other Avrio exits, some of them award-winners. Last year it exited Wolf Trax, a fertilizer and seed treatments provider bought by Compass Minerals. The deal gave Avrio 15.4 times its investment and an internal rate of return of 138 percent, and it was named the Canadian Venture Capital & Private Equity Association‘s 2015 Deal of the Year.

More recently, Avrio portfolio investment Ascenta Health, a developer of omega-3 supplements, was bought by an affiliate of Schwabe Pharma. And last November, Allylix, a renewable chemical business, went to Evola for an estimated US$61 million.

Georgacacos believes liquidity events have attested to the quality of food and agricultural technology opportunities and to Avrio’s pioneering role as a late-stage investor in the sector.

“The return profile for all of Avrio’s funds has validated our long-term investment thesis,” he said. “It has given greater visibility to agtech opportunities and shown that the vertical is viable and investable.”

Georgacacos pointed to an increasing number of VC firms and strategic investors that are paying closer attention to agtech deals. They include Silicon Valley’s Kleiner Perkins Caufield & Byers, which invested alongside Avrio in precision agriculture specialist Farmers Edge and seed technology startup VoloAgri.

The sale of Manitoba Harvest should lend impetus to Avrio’s fundraising. The firm is currently marketing its fourth partnership, Avrio Ventures LP III. Last September, it raised an initial $65 million from existing LPs Farm Credit Canada and Export Development Canada.

Georgacacos said he is “feeling really good” about Fund III’s chances of reaching a final goal of $125 million sometime this fall. He said Avrio is targeting commitments from institutional funds, family offices and high net-worth investors.

Georgacacos and Managing Director Jim Taylor founded Avrio in 2006 after spending four years establishing its predecessor, FCC Ventures. With offices in Calgary, Montréal and Toronto, the firm has invested in more than 65 companies.

This story first appeared in affiliate magazine Venture Capital Journal, which is published by Buyouts Insider. To subscribe to VCJ, click here for the Marketplace.

Photo of Manitoba Harvest logo over crop field courtesy of Ptarmak

Photo of Aki Georgacacos courtesy of Avrio Capital

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