Food, the ultimate consumable, is experiencing unprecedented changes throughout the supply chain. It’s an area that John C. Fennebresque Jr. sees opportunity in for an investment banking firm focused on “the sector’s changing consumer habits, disruptive agricultural technology, and the resulting impact to the broader market.”
Fennebresque, managing partner of Charlotte-headquartered investment banking and advisory services firm Fennebresque & Co., sees it as a sector “that will touch many aspects of the economy over the next several years.”
In choosing the “seed to sale” niche as the firm’s focus, Fennebresque & Co. serves clients across the full spectrum of the food value chain, companies whose services range from improving ways to grow food to putting it on the table.
“The far-reaching food value chain is rapidly evolving, and it has never been more critical for companies to understand their opportunities and vulnerabilities,” explains Fennebresque. “We want to assist companies that are involved in reshaping the food industry. Our clients are primarily middle-market companies, but range in size from startup to Fortune 500.”
The Food Value Chain
“Agri-bio technology is a rapidly evolving segment,” continues Fennebresque. “Development is being driven by advances in genome sequencing which, in turn, accelerate an understanding of food growth and safety, forcing producers, regulators, and consumers to better understand where technology and the food chain intersect.”
“New technology is changing processes like developing natural alternatives to address pests on major crops, finding crops that grow in arid climates, and developing biomarking and GPS systems for tracking produce and other foods.”
The change in the food chain continues all the way through to the consumer.
“As consumers become more health-conscious, they are looking for food that is produced with less chemical residue and with better nutritional value,” explains Mark Spizer, Fennebresque & Co. vice president. “Consumers in the U.S. are increasingly looking for natural food and natural alternatives to chemical pesticides.
“Millenials, or those under 30, often position food choices as an important component of their lifestyles,” comments Spizer. “They are increasingly health-conscious and there are those that think nothing of spending $8 for a green energy shake.”
“Boomers, who are used to dominating the food chain, want to find natural food that tastes good,” adds Spizer. “The overarching theme is that consumers want to make informed choices.”
Food and beverage companies themselves are also concerned about public criticism and negative publicity stemming from the use of unpronounceable components or unfamiliar ingredients, removing them from their processing or finding alternatives.
For example, Starbucks last year removed cochineal extract, a red dye made from crushed bugs, from its food and drinks after consumers started an online petition calling for its removal. Pepsico removed brominated vegetable oil from Gatorade earlier this year, and Kraft Foods is reformulating some of its macaroni and cheese products to remove the artificial dyes.
Chick-Fil-A is also removing artificial dyes and high-fructose corn syrup from dressings and sauces. Even the french fry is seeing improved health benefits—several large chains are using expellar pressed oils which retain higher levels of omega 3 and vitamin E and removes hexane from the traditional cooking oil refining process.
These industry moves show how ingredients can become a liability if they are not accepted by the public—and an asset if positioned correctly.
Food producers, as well as distributors, are involved. Consumers care about where their food comes from. They want to be sure it is safe to eat. Health care providers and government regulators are connected, both concerned about consumer diet, health trends and costs.
“What you eat is directly related to your health,” adds Spizer. “Consumer health impacts health care costs and the huge health care debate going on now.”
“In order to feed an exploding world population, agriculturalists have to look for new ways to increase product yield,” points out Fennebresque. “They must meet the challenge of growing products in less than optimal conditions—in arid climates and poor soil, for example, as the world reaches limitations on arable land.”
Understanding the “disruptive” changes that technology is bringing about in the food industry is not easy. Disruptive change includes genetic modifications in food, says Fennebresque, or introducing beneficial microorganisms into an ecosystem to promote plant and animal health. It also includes the continuing changes in the safe use of chemicals in agricultural products.
It increases the amount of new information for all stakeholders in the process.
Fennebresque sums up their niche: “Technology and evolving consumer trends are bringing together players in different food sectors to alter some traditional components of the food industry. The ecosystem is evolving to accommodate the new technology, and large investors are very interested in investing in this space.”
Fennebresque & Co. is playing a growing role in the new food value chain marketplace.
“Where there is change, there is opportunity, and we’re going to see where that opportunity takes us,” says Fennebresque.
Home Grown, and Still Growing
Fennebresque, a native Charlottean, was working in New York City for Credit Suisse First Boston when 9-11 hit. He watched the second plane crash into the World Trade Center from his office window. Most people went home, but his team was working on a major deal with Enron (before the company’s collapse), so they were asked to stay and work the rest of the day.
On his 60-block walk home to the Upper West Side, after a day when much changed in the world, he was reflective. He thought about working while most of the country wept or prayed.
“It just didn’t make sense for us to be there working when we should have been with family and friends,” says Fennebresque. “That’s when I decided to come back home.”
A few months later, he returned to Charlotte to work with Hugh McColl Jr. at McColl Partners. In 2007, he opened Fennebresque & Co., a firm that now includes 10 partners and associates with offices in Raleigh, Charleston and New Orleans.
Fennebresque & Co. works with firms that are looking for a strategic approach to their mergers and acquisitions and structured deals. Fennebresque says his firm is extremely nimble and able to choose the deals they work on.
The firm, which includes advisory partners, completed 15 deals over the past three years with regional and national clients. About 80 percent of them range from $50 to $150 million, says Fennebresque, but they are less focused on size and more on strategic positioning.
The firm has had notable success selling relatively smaller companies to larger companies. Fennebresque says assessing the strategic importance of the entity is key.
Brokering deals successfully is an art that Fennebresque & Co. does really well, says Bradley King, former CEO of Lonesource, Inc., a Cary-based office vendor.
Lonesource is an office supply company that supplies small and mid-size companies with break room transactional products such as coffee, tea, and supplies, and all other office products. Started in 2000, when it “barely scratched the surface of revenue,” says King, it grew to peak of $63 million and started doing acquisitions in 2008. In 2013, Lonesource was acquired by Staples in a deal set up by Fennebresque.
First introduced to Fennebresque & Co. by his company’s attorney in 2011, King says he spent about two years in advance of the sale working with the firm.
“John and his associates really spent time getting to know our business and management team, so that they could understand the complexities of our business. They explained our company in a memorandum that could be served up to possible suitors.
“John’s a pro. He has in-depth knowledge of sell-side transactions; he advised and prepped us,” says King. “Nothing ever came up that he didn’t know how to deal with it. He’s a very seasoned banker who did a fantastic job representing us.”
The acquisition took about nine months, “exactly what we expected since John had prepared us for it,” explains King, who called it the right transaction for his company.
“We were properly educated and properly informed,” adds King. “There was never a point in the transaction when I felt like I didn’t know what was going on. I would recommend Fennebresque & Co. to anyone consider selling their company.”
Disruptive Change Technology Deals
“In investment banking, there is no typical deal,” explains Fennebresque. “Every project you do is different. Growth-oriented companies usually want to do something with strategic positioning to distinguish them when they go to market.”
Fennebresque says the firm is now focused on winding down “generalist” deals, and proactively marketing in the food sector, or seeking to make the connections that involve the disruptive change to the food value chain.
“Technology and consumer preferences are developing rapidly,” acknowledges Fennebresque, “and the ecosystem is evolving to accommodate them. It’s a continuous process.”
A major deal brokered by Fennebresque & Co. this fall involved the acquisition of the Center for Agricultural and Environmental Biosolutions (CAEB), a company specializing in sustainable agriculture research, by FMC Agricultural Solutions, resulting in a global strategic alliance.
CAEB in Research Triangle Park is a division of North Carolina-based RTI International, jointly owned by Duke and the University of North Carolina, that employes “more Ph.D.s than any commercial business in the country,” says Fennebresque.
“North Carolina is to agricultural technology the way that Silicon Valley is to computer technology,” explains Fennebresque.
The deal will produce new crop protection products that will help farmers around the world fight resistance and work to maximize yields, and has been described as “connecting a world-class library of microorganisms, deep expertise in biological discovery, and an exclusive strategic alliance with one of the world’s foremost authorities on microbial research and fermentation.”
“It was a once-in-a-lifetime opportunity to work with Dr. Niels van der Lelie, a leading researcher in the field of microbiology,” says Fennebresque. “When we began the work we didn’t know how it would turn out, but we did know how valuable it was to work with the scientific team.”
“This deal was a turning point for our firm,” says Fennebresque. “It was the caliber of the deal that drew the strategic interest of major global companies.”
While Fennebresque will not divulge financial information on the high-profile deal, he places its strategic importance in the neighborhood of the recent acquisition of AgraQuest by the Bayer Group for about $500 million to develop products for biological pest and disease control. He also noted that FMC’s market capitalization grew by almost $2 billion following the announcement of the transaction.
“It was exciting because it is important,” he explains. “Our firm played a role in accelerating this trend. It was an opportunity of converging paths and we had the chance to have an impact in this food value sector.”
As a result of the deal, Fennebresque & Co. has become firmly focused on bringing together food industry veterans and advisors to seek new opportunities in the food value sector. Advisory partners include Tom Christensen, CEO of Ag TechInventures, an authority in precision farming research and development, and Brandy Salmon, who leads the food and agriculture practice for the Innovation Advisory Team at RTI International.
In addition, the firm includes financial advisory partners Kim S. Fennebresque, senior advisor to Cowen Group Inc., and Benjamin P. Jenkins, former vice chairman of Morgan Stanley & Co. and Wachovia Corporation.
“That’s the beauty of specialization,” says Spizer. “People are coming to us. We’re starting to gain some wisdom about the different elements in the food value chain and how the pieces fit together.
“John is a strategic thinker who is able to take a fresh look at the things happening in the food value chain.”
“We’ve had terrific early success. We’ve closed several deals this year and there are several more in the pipeline,” says Fennebresque. “We are still relatively early in our new positioning in the emerging elements of the food value chain, but we have terrific traction.”