SEATTLE — The sale of a tree fruit and berry processor in Grandview, Wash., to a Richmond, Va., tobacco company is the latest example of the continuing financial squeeze of the Washington tree fruit industry, a Seattle investment banker says.
Michael Butler, CEO of Cascadia Capital in Seattle, represented the seller, FruitSmart Inc., in the transaction. He told Capital Press that he’s working on two other deals involving vertically integrated Washington tree fruit companies, one likely to be announced in January and another in the second quarter of 2020.
A vertically integrated company is one that grows, stores, packs and sells its own fruit.
“I expect a real robust year next year,” Butler said. “Commercial banks have been calling us that lend to these companies, saying they can’t lend anymore and that the companies need help by a merger or investment capital.”
Commercial banks are forcing these companies to raise equity capital or sell to pay loans to be able to continue as viable organizations, he said.
The problem is exacerbated by this season’s large apple crop and declining prices, he said.
Universal Corp., of Richmond, Va., announced its purchase of FruitSmart on Nov. 20. FruitSmart produces juices, purees, concentrates and dried ingredients of fruits and berries and has a 128,000-square-foot facility in Grandview and a 335,000-square-foot outside storage facility in Prosser.
FruitSmart has about 200 employees. Family members of the previous owners, Jim Gauley and Jim Early, will remain in management, said Scott Porter, a Cascadia Capital senior vice president.
Universal Corp. is a $2 billion company looking to invest outside tobacco and has the capital to grow FruitSmart, Butler said.
Two years ago at the Washington State Tree Fruit Association annual meeting in Kennewick, Butler spoke to more than 1,000 growers and said more industry consolidation was likely because companies were running new, expensive packing lines too far below capacity to pay debt.
Individual companies needed more fruit for their packing lines but collectively the industry has too much fruit and too many packing facilities, he said.
He said some attendees did not believe him but that several mid-sized companies had already approached him for investments.
Mid-size companies of less than 1,500 acres of orchard, running at or under 30% packing capacity and not vertically integrated are most at risk, he said. Only companies controlling 10% of industry sales would be long-term competitors, he said.
Chelan Fresh Marketing of Chelan, Stemilt Growers of Wenatchee, Zirkle-Rainier of Selah, Washington Fruit & Produce of Yakima and Domex Superfresh Growers of Yakima are all in that top tier. Two large companies raised significant outside capital by late 2018, Butler said.
Early in 2019, International Farming Corp., an agricultural investment firm in Kinston, N.C., bought Legacy Fruit Packers and Valley Fruit III, both of Wapato, and Larson Fruit Co. of Selah.
In a separate transaction, the Ontario Teachers’ Pension Plan bought Broetje Orchards of Prescott near the Tri-Cities. The parties would not comment but government records showed $288 million was paid for the real estate portion.
Beside FruitSmart, Cascadia Capital represented sellers in three other transactions this year, Porter said.
In mid-August, Fiera Comox Investments, of Montreal, bought the majority share making a significant capital investment in Auvil Fruit Co., of Orondo, Wash., Porter said. Auvil management will remain but the deal will help the company acquire more orchard to sustain its investment in a new packing line, he said.
“The interesting thing about Fiera is that it has an endless life fund backed by Fiera Asset Management, a public asset management firm,” Porter said.
Fiera could hold onto Auvil for a long time, Butler said.
In September, Firestone Pacific Foods, a frozen berry processor in Vancouver, Wash., was acquired by Agricultural Capital Management, a Portland private equity fund that already owned more than 3,000 acres of blueberries, Porter said.
“They are doing this to vertically integrate to sell processed as well as fresh berries,” he said.
In March, Western Polymer Corp., a potato starch manufacturer in Moses Lake, was bought by Ingredion Inc., a global food ingredient company near Chicago, to gain more potato starch supply, Porter said.
“Ingredion was the largest supplier of potato starch in the nation and Polymer was second,” he said.