Plant-based meat and nondairy yogurt show growth; CPG venture arms see opportunity; lab meat – the next frontier

October 25, 2017

mergermarket plant-based meat

This article was written by Mergermarket, the leading provider of forward-looking M&A intelligence and data to M&A professionals and corporates around the world.

By Dayna Fields
Mergermarket
www.mergermarket.com

Plant-based foods might be a tiny segment of the nation’s food sales, but its rapid growth and disruptive nature should translate into big M&A opportunities in the near future, industry executives and advisors say.

Sales of plant-based foods have increased 8.1% in the past year, according to Nielsen data. Compare this to all foods sold in the same channel (deli, dairy, meat, frozen, and bakery, among others), which decreased 0.2% over the same period. In total, the plant-based food segment is worth $3.1 billion in sales.

Even more telling are plant-based dairy alternatives, which grew a whopping 20% in the past 12 months, topping $700 million in sales, according to Nielsen. The category includes cheese, yogurt (grew 56% in the past year), and ice cream. Meanwhile, traditional cow’s milk sales dropped 5%.

Vegan food options are becoming more mainstream in the US, as “plant-based” was the biggest buzz word on the floor of the industry’s Natural Products Expo East show in September, according to Greg Wank, leader of the Food and Beverage Industry Practice at Anchin, a New York-based accounting and advisory firm.

VC’s and Some Strategics Strike Early

The newly emerged segment offers high growth and high margins, said Gian Ricco, a Director in Stout's Food and Beverage practice. But right now, plant-based foods companies are typically very small and very young.

“I don’t think you’ll find anyone (in banking) who has done much work in this space because it hasn’t happened yet. It’s in its early stages, so the next step is, who do they sell to?” said Ricco.

Wank and Anchin pointed to heightened investment activity in plant-based nutrition, plant-based protein, and meat alternatives, which are mostly attracting minority investments from VC’s and even young PE firms that see where the market is headed and are eager to break in early.

Leading the way are several venture arms of food giants like General Mills, whose 301 INC bought a stake in D’s Naturals – creator of No Cow protein bars and protein-infused nut butters – in February 2017. It has also made two undisclosed investments in Austin, Texas-based Rhythm Superfoods – maker of beet and kale chips – according to Mergermarket data.

Meanwhile, GV, Alphabet’s venture investment arm, led a $30 million Series B round in summer 2016 for Emeryville, California-based Ripple Foods, a producer of high-protein, pea-based milk. Other VC’s in the round included Khosla Ventures and food and ag-focused firm S2G.

Even international strategics are jumping in, with Japanese pharmaceutical company Otsuka acquiring 100% of Canada’s dairy alternative foods company Daiya Foods for $324 million in July. It was the company’s first foray into the food industry, indicating a possible desire to increase its presence in the North American nutritional space.

Meat Alternatives a Growing Hot Spot

While most private companies in the alternative protein space are far too young to attract CPG giants or private equity players, the one exception is meat.

“People want plant-based burgers more so than any other (alternative foods) application. And depending on the population, they’ll pay a premium, too,” noted a report from Datassential, called “Plant + Cellular Foodscape 2017,” which credited foodies, Millennials and Gen Z for pushing the plant-based and environmentally sustainable foods trend forward.

Legacy brands and large CPG players appear to be less cautious about rolling the dice with this nascent segment in an effort to keep up with shifting consumer diets, said a sector advisor. In that
respect, acquisitions – even of tiny companies – seem like a cheaper and faster solution than R&D investments.

“If they have the right technology—meaning, if it’s good quality, if it tastes good, if it holds well and if it looks like meat to the consumer, it doesn’t matter what size the company is,” the sector advisor said.

He added that large consumer packaged goods (CPG) companies and more agricultural-based players like Cargill, ADM, and ConAgra are all interested in the high-growth plant-based segment. “They think there is a lot of opportunity,” he said.

In September, Nestle acquired Moss Landing, California-based Sweet Earth Natural Foods, a producer of plant-based frozen meals and breakfast “meats” like Benevolent Bacon and Harmless Ham. And in late 2016, Tyson Foods launched a $150 million venture capital fund to invest in the future of protein production, also known as “meatless meat.” The fund, called Tyson New Ventures LLC, has a 5% ownership stake in Beyond Meat, which partnered with Sysco in September to distribute its plant-based Beyond Burger to foodservice operators nationwide.

Another plant-based burger maker garnering attention in the sector is St. Louis-based Hungry Planet.

“I can tell you we’re at the starting gate in this transition; the patterns in consumer behaviour, especially among young people, are really clear, so this is definitely going mainstream,” said Brian Swette, CEO of Sweet Harvest, who formally held trend-spotting positions as head of marketing for Pepsico and as COO at eBay.

A Potential Bellwether

One company seen as a potential bellwether for M&A in the plant-based food segment is Fairfax, California-based Miyoko’s Kitchen, which accepted a $6 million investment in February from JMK
Consumer Growth Partners. Miyoko’s manufactures a variety of nut-based nondairy artisanal cheese. It received previous investments from Obvious Ventures and Stray Dog Capital.

“If Miyoko’s is successful, you’re looking for the homerun that’s 4x-5x revenue plus, which is what you get when you talk about high growth, high margin,” said Ricco, with Stout.

Lab Meat the Way of the Future?

Even further in the future is the prospect of growing meat in a lab, to circumnavigate the process of slaughtering animals. The process is known as cellular agriculture, and it is drawing some big
attention from techies and food giants alike.

In August 2017, San Leandro, California-based Memphis Meats, which produces “clean meat” from animal cells, closed a $17 million Series A round led by DFJ. Cargill and other food industry giants joined in the round, as well as Bill Gates and Richard Branson, among others. The company has now raised $22 million to date.

Other startups focused on clean meat and other alternatives to traditional meat and dairy include Israel-based Future Meat Technologies, which was one of a group of technology groups that recently agreed to partner with the Chinese government on clean tech initiatives. Start-ups in cellular agriculture also include Clara Foods, and Perfect Day, both based in South San Francisco.

While the concept of lab-grown “meat” is still new, it’s gaining familiarity among the consumer segment’s top influencers. With social welfare and healthier diets both serving as on-trend motivators, large M&A opportunities are on the horizon as cellular agriculture goes mainstream.

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