YAKIMA, Wash. — A couple of mid-size Washington tree fruit companies are in the final stages of being sold with closing likely after the first of the year, a Seattle investment banker says.
A pension fund in Canada is buying one and a Southeast investment company is buying the other in separate transactions, said Michael Butler, CEO of Cascadia Capital, Seattle. He declined to identify the tree fruit companies on the record. and their spokesmen declined comment.
Butler said he’s heard of a third Washington tree fruit company with some apparent change in ownership and knows of two large Washington tree fruit companies that are “out raising significant capital.”
“One is acquiring large capital to buy out existing minority owners and continue to grow, to buy land,” he said.
It’s an acceleration of a consolidation and capital acquisition trend he spoke about a year ago at the annual meeting of the Washington State Tree Fruit Association, Butler said the Friday before this year’s meeting began on Dec. 3 in Yakima.
Washington tree fruit companies are pressured by lack of sufficient labor, labor costs, government regulations and price competition.
“If you’re really small you’re fine and if you are really big you are fine. It’s the middle that’s really tough,” Butler said. “The big challenge is a lot of these packing houses are very low in capacity utilization. They run at 30 percent capacity and it's not enough to pay debt on new packing lines. They need more fruit and as more independent growers go away, they need more land for more fruit.”
A year ago, he said very powerful buyers including Kroger, Trader Joe’s and Whole Foods dictate what they want and fruit companies need to consolidate to match that power. A company has to control 10 percent of the sales market to be a long-term competitor, he said, and that companies of less than 1,500 acres or running less than 30 percent of their packing capacity will be at risk. Companies were looking for investors to help them plant more orchards to have more fruit needed to help pay for new packing lines, he said.
All of that is continuing and “I think the pace will only accelerate in 2019,” he said last week.
Family and pension fund investors with a longterm view and happy being minority partners are the best fit, he said.
As an investor, he said, he looks for companies with high-quality management that is forward thinking and open to new technology efficiencies and secondarily for quality of packing and storage facilities and orchards.
“Pension funds and insurance companies, in particular, are coming in as buyers of land. They will often be given a sliver of ownership in the packing facility to sweeten the land investment,” Butler said.