Quinoa Baby Mush Puts Canadian Company in Takeover SpotlightBy
GreenSpace’s sales tripled in a year as consumers go organic
Shares have surged 57% over the past year as offerings expand
Quinoa-laced baby mush and probiotics-laden lamb-and-rice dog chow have fueled this Canadian company onto the shelves of retailers from Wal-Mart Stores Inc. to Starbucks Corp. and is sending its shares higher.
GreenSpace Brands Inc.’s stock has risen 57 percent in the past year, compared with a 6.3 percent gain in Canada’s benchmark index, as it acquires a stable of natural food and drink brands and wins deals for space in superstores, gas stations and cafes across the country. The Toronto-based company’s sales more than tripled in a year as retailers scramble to meet consumers’ demand for healthier offerings.
Its success could make it a takeover target down the line.
"There are loads of opportunities just in groceries, and we’re really good at groceries," said Chief Executive Officer Matthew von Teichman. "We’re not aiming for it. But it’d be disingenuous not to say that one of these big companies might come knocking when we have a little more scale."
Amazon Inc.’s surprise acquisition of Whole Foods Market Inc. shows how pervasive natural and organic products are becoming with consumers, said von Teichman. Sustainability-minded millenials and spendy baby boomers seeking healthier lifestyles are buying up organics in Canada, making this the fastest-growing farm food sector since 2006 with value tripling to C$3 billion ($2.3 billion) in that period, according to Laurentian Bank Securities Inc. analyst John Chu.
It’s also a highly fragmented market. Small suppliers lack the know-how to deal with big distributors and capital to reserve shelf space, creating headaches for major retailers like Loblaw Cos. That’s where GreenSpace comes in.
"They’ve been able to take these mom-and-pop natural food products and plug them into their distribution channel," said David Barr at Vancouver-based PenderFund Capital Management Ltd., who runs Canada’s best-performing small-cap fund that took a stake in GreenSpace last year. "There’s tremendous value creation in that. It’s only one relationship for the Loblaw store to manage."
GreenSpace rose 8.4 percent to C$1.55 in Toronto on Friday, its biggest gain since December.
The company traces its roots back to 1999 when it began as a supplier of premium meats from grass-fed animals raised without antibiotics and growth hormones. It developed distribution channels with major retailers in part by poaching executives from across the aisle -- its chief operating officer hails from Loblaw, while the head of its Quebec sales team is a former large retail buyer.
Five of its eight brands are homegrown, including Holistic Choice Pet Food, the purveyor of Lamb & Rice for dogs. Yet its most dramatic results have come since it began buying existing brands and plugging them into the network, starting with Love Child Organics, a maker of organic puree pouches and rice cakes, for about C$6 million in October 2015.
Love Child, started by a teacher and her former London investment banker husband in the kitchen of their Whistler home, drew attention when it won a record commitment from investors on the reality TV show Dragons’ Den in 2013. Its first customer was Wal-Mart. Yet the business struggled to scale and was losing money. Within five months of acquiring it, GreenSpace made it profitable and within a year boosted the unit’s sales by 260 percent.
"It’s a massive homerun," said von Teichman. He’s the biggest shareholder in GreenSpace with a 10.9 percent stake in the C$86 million company, according to data compiled by Bloomberg.
Hunter to Hunted
Von Teichman’s targeting C$100 million in sales within two years, nearly triple the figure for the year ended March 31. While GreenSpace expects to grow through acquisitions, opportunities also exist with current partners -- the company has over 1,000 products though no one store stocks more than 200 of them. He’s also exploring opportunities with local distributors in China, the Middle East and elsewhere in Asia.
That could be setting GreenSpace up to become a takeout target itself.
"At C$100 million in revenue, it becomes attractive to a large range of strategic buyers," said Barr, whose Pender Small Cap Opportunities Fund has invested in 150 companies since 2009 of which 47 were acquired -- averaging about one every two months.
Since 2013, General Mills Inc., Coca-Cola Co., Campbell Soup Co., Hershey Co. and Hain Celestial Group Inc. have snapped up natural and organic food brands in transactions totaling over C$1.8 billion, Raymond James Ltd. analysts, led by Kenric S. Tyghe, said in a February report. Campbell Soup on Thursday agreed to buy an organic broth company for $700 million.
"The hunter could become the hunted," they wrote.
— With assistance by Kristine Owram