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HM Capital Buys The (Organic) Farm

HM Capital Partners has invested in Earthbound Farm, a San Juan Bautista, Calif.-based organic farm, peHUB has learned. Terms of the deal were not available but the company has secured $135 million in debt funding from RBC Capital Markets, a sum that totals around 1.9x to 2.9x leverage, according to reports published by two debt providers. The facility has a spread of 550 and 3% Libor floor.

Dallas-based HM Capital joins the business’s existing partners, growers Mission Ranch and Tanimura & Antle, as well as founders Drew and Myra Goodman, as shareholders. The company’s President Charles Sweat will assume the role of CEO. The stake size was not disclosed, but HM Capital has historically made majority stake investments.

HM Capital plans to help the company grow via add-on acquisitions of other organic food companies. “We see tremendous opportunities for Earthbound Farm to leverage its brand, organic acre base and farming expertise to introduce additional organic products, said Andrew Rosen, a partner with HM Capital.

HM Capital has played in the food and beverage industry in the past—in 2005 the firm purchased Sturm Foods, a Wisconsin-based maker of nutritionally focused drink mixes, hot cereals and other dry mix products. The firm also owns Advanced H20, a single serve private label bottled water business. In 2007, the firm sold Swift & Co., a producer of beer and pork products, to a Brazilian company for $1.5 billion.

Earthbound Farm has grown over the past 25 years from a 2.5-acre operation to more tan 33,999 acres of farmland. The firm operates its farms through the partnership of 150 farmers.

Few other buyout firms have jumped on the organic food products bandwagon. In 2007, Phoenix Equity Partners invested in UK organic farm Abel & Cole. Turnaround firm Pegasus Capital purchased a 51% stake in Hain Pure Protein, a producer of natural, organic and antibiotic-free chicken and turkey products.

HM Capital made the investment from its HM Capital Sector Performance Fund LP, a $780 million pool raised in 2008. The fund is HM Capital’s first fund since re-branding itself as such after raising and deploying five U.S-focused funds and three international funds as Hicks, Muse, Tate & Furst Inc. In addition to food and beverage deals, the firm targets investments in the media and energy sectors.

Update: I’ve posted a Q&A with Rosen about the deal.