Deal of the week: HM Capital buys the farm

HM Capital Partners has invested in Earthbound Farm, a San Juan Bautista, Calif.-based organic farm.

Terms of the deal were not available, but the company has secured $135 million in debt funding from RBC Capital Markets. HM Capital typically acquires majority positions.

Dallas-based HM Capital joins the business’s existing partners, growers Mission Ranch and Tanimura & Antle, as well as founders Drew and Myra Goodman, as shareholders. Company President Charles Sweat will assume the role of CEO.

HM Capital plans to help the company grow via add-on acquisitions of other organic food companies. “We see tremendous opportunities for Earthbound Farm to leverage its brand, organic acre base and farming expertise to introduce additional organic products,” said Andrew Rosen, a partner with HM Capital. Rosen added that the firm had been in discussions with Earthbound for about two years.

“Food is something that’s core for us. It’s also something we’re very selective about, but we get excited about the sector,” Rosen said.

HM Capital has invested in the food and beverage industry throughout the past two decades. In 2005, the firm purchased Sturm Foods, a Wisconsin-based maker of nutritionally focused drink mixes, hot cereals and other dry mix products. The firm also owns Advanced H20, a single serve private label bottled water business.

In 2007, the firm sold Swift & Co., a producer of beer and pork products, to a Brazilian company for $1.5 billion.

Earthbound Farm has grown over the past 25 years from a 2.5-acre operation to more than 33,999 acres of farmland. The firm operates its farms through the partnership of 150 farmers.

Rosen said that most of the companies in the organic food industry are relatively small. But he also said that the firm plans to look at add-on acquisition opportunities.

“The core salad business isn’t exactly ripe for consolidation since [Earthbound Farms] is the largest today,” he said. “But we can look at other product categories that are organic—it could be within produce or elsewhere.”

Few other buyout firms have jumped on the organic food products bandwagon. In 2007, Phoenix Equity Partners invested in U.K.-based organic farm Abel & Cole. Turnaround firm Pegasus Capital purchased a 51% stake in Hain Pure Protein, a producer of natural, organic and antibiotic-free chicken and turkey products.

HM Capital made the investment from its HM Capital Sector Performance Fund, a $780 million pool raised in 2008. The fund is HM Capital’s first fund since re-branding itself after it raised and deployed five U.S-focused funds and three international funds as Hicks Muse Tate & Furst Inc.

In addition to food and beverage deals, the firm targets investments in the media and energy sectors. —Erin Griffith