A New $300 Million Investment Fund Is Targeting the Washington Food Industry

This article appears in print in the February 2018 issue. Click here for a free subscription.

Bellevue-based HarvestWest investments started up in 2011 to pursue opportunities in a then-overlooked asset class: farmland in the Northwest. The firm amassed an investment pool of $36 million, primarily from individuals, and built a portfolio of more than 13,000 acres, generating income by leasing that land to farmers looking to increase the size of their operations but lacking the capital to expand.

That fund was fully invested by January 2016. For his next project, HarvestWest cofounder and Managing Director Greg Richards decided not to do another farmland fund. The formerly overlooked investment wasnt so neglected anymore, he explains. The marketplace is a lot different. There are a lot more investors looking at it and going into it. The thesis worked; the valuations in the Northwest came up like we hoped, but that made it hard to do it again.

So, Richards decided to move down the food chain. Arable Capital Partners also situated in Bellevue, closed its $300 million fund (primarily from institutional investors) in June, and is now scouring the market for opportunities in food processing and packaging the businesses that, as Richards puts it, take food from harvest to the grocery store.

That segment is not nearly as neglected as farmland once was. Merger-and-acquisition activity is fueled by family companies looking for buyers, private equity firms looking for something to buy and large food companies adding to and divesting from their own portfolios. But Richards believes Arable Capital has several advantages giving it an inside track for landing deals.

One is a team that knows the language and the cycles of agriculture as well as the lay of the land, as opposed to a traditional private equity firm that has more of a generalist model, that says, Were in agriculture because were in all industries; we can learn any business. In addition to Richards own contacts and experience from building HarvestWest, the Arable Capital team includes Derek Yurosek, who before joining as managing director was the head of agriculture operations for Cottonwood Ag Management, a part of the operation that manages investments for Bill and Melinda Gates. Two of the five-member Arable team, including Yurosek, are based in Bakersfield, California. Arables prime hunting grounds for investments are Washington, Oregon, Idaho, California and Arizona.

Another advantage is Arables investment horizon of 15 years or more. This scenario is attractive for family-owned companies that want to see their legacies preserved (Arable will do both majority and minority stakes). If Im a seller, Richards says, thats the one I want to sell to, not the private equity business that says, Im going to buy this business with a lot of leverage and flip it in five years. Were trying to be a compelling buyer.

Arable hasnt closed any deals yet but hopes to have its investment fund fully committed in three to five years. Richards believes there will be opportunities to make deals attractive to both parties.

Business owners like the story, he says.