Daniel Brody | Eat Well Group

Why EWG is looking outside of oversaturated subsectors like alt-dairy and vegan burgers for its next acquisition

New kid on the block Eat Well Group (EWG) is on the hunt for plant-based CPG acquisitions, having recently restructured its business to cater to the fast-growing sector.

As a public company, EWG trades at a significantly lower valuation that its plant-based peers Oatly and Beyond Meat, despite being one of the few businesses in the space that is covering the entire value chain, from raw ingredient growth to on-the-shelf products.

It’s coverage of the full value-chain and vertically integrated structure is what co-founder and director at EWG Daniel Brody believes will set the company apart from others. Brody is particularly bullish on EWG’s structure when considering the growing supply chain struggles many are facing with increased raw materials costs and distribution setbacks due to a lack of HGV drivers.

“Some of the biggest food companies in the world have flagged supply chain and logistics struggles as one of their biggest operating risks,” Brody tells NutritionInvestor. “It’s their raw ingredients that they can’t control the consistency, quantity and cost of, but we’ve solved that problem via vertical integration.”

Brody talks candidly on EWG’s capital raising efforts and why the company is looking beyond the oversaturated subsectors of alt-dairy and plant-based burgers for its next acquisition.

Eat Well Global just completely rebranded and changed direction in July, how has the company evolved in the last year?

We started as an investment company and now we’re public and focusing on the value chain of plant-based foods. Investment companies that go public always trade at a severe discount to their net asset value as investors don’t really reward you for growing your assets at this stage.

I was hired by the company about a year ago and my job as a director was to find a new direction for the company to create more value. Having grown up vegetarian and having seen the kind of global shift that’s happening in front of us being led by plant-based foods, I knew that’s what I wanted to present to the team and they loved it.

Next, we set out to find a management team to work with on this and we established one of the strongest plant-based food teams in the world to help us acquire a host of new companies. These guys have been Seed investors in Beyond Meat and Oatly and all the big plant-based food companies.

We’ve bought three companies in the last month and we’ve changed our name and rebranded, indicating a total shift in the methodology of the business.

One of those businesses we acquired is among the top fractionation companies in the world. These guys have been around for 42 years. We’ve transformed this business to create one of the first vertically integrated seed-to-market plant-based food companies in the world.

We own the processing side and the farming side and we’ve got technology producing our own brand of healthy plant-based snacks that are soon to launch to market. I don’t know if anybody else has the entire value chain covered in that way.

I think that’s important because some of the biggest food companies in the world have flagged supply chain and logistics struggles as one of their biggest operating risks. It’s their raw ingredients that they can’t control the consistency, quality and cost of, but we’ve solved that problem via vertical integration.

Who else is on the EWG exec team?

We’ve been around for about 10 years and the team that was brought on to run it originally are all ex-investment advisors or bankers so they have a lot of experience in investment in different companies. Between them and our new expertise, we have been able to structure several acquisitions within the Eat Well Group that have been absolutely incredible for us.

On the team we’ve now got Mark Coles, who has built two fractionation facilities and he sold his last one to Ingredion, the largest ingredient supplier in the world. Now we’re working on new fractionation facilities and we acquired one recently that is producing 93,000 metric tonnes of ingredients per year. Marc Aneed is our new president and he’s spent 25 years working in CPG products including Quaker Oats and PepsiCo. He’s also led several different ecommerce start-ups to generate $750 million a year in sales.

Another new member of our team has worked with ultra-high net-worth families for the greater part of 25 years and that’s how we got introduced to Saudi Prince and investor Prince Khaled. He has represented some of the wealthiest families in the world and he’s been able to create some incredible businesses in that time. When you merge all this together with the capital raising side we’re able to have an incredibly well-funded story to support future acquisitions.

How have your capital raising efforts at EWG changed since restructuring the business?

Having just changed our name and restructuring the business in July we’re basically a brand-new public company. To support our first acquisitions, we raised $33 and a half million dollars of debt funding from a leading Canadian lender. The amount of due-diligence that a debt lender has to do versus an equity lender is tremendous. They dug through everything, providing a seal of approval for new equity investors looking to come in and fund us.

We had about $13.4 million in cash and warrants in our Treasury at the last quarter which is more than enough for our operations. Our Belle Pulses business is cashflow positive and we generate about 20% EBITDA margin. We will use some of that profit to fund added acquisitions and management expenses etcetera.

We’ve had quite a few groups approach us looking to make strategic investments. Large family offices and institutional investors want to invest $10 million or 20 million into us. Because we’re such a new company and nobody knows about us yet, we trade at a significant discount to every other plant-based food company out there. If you look at the average multiple for public plant-based food companies it is 11.7x their top line 2021 revenue. We’re trading at about three and a half or four times our 2021 revenue right now.

I do think people are starting to realise that though and our stock moved from about 60 cents to about $1.20 in the last four weeks so hopefully that valuation gap closes.

What has your M&A strategy looked like so far and what will future plans entail?

We knew we wanted to cover the upstream side of the equation including farming, processing, extraction and extrusion and we now supply that through Belle Pulses. They’ve been around since 1978 as a family run business and it is estimated to generate $60 million in revenue this year and $15 million in gross profit.

This is an industry with many entrepreneurs and new innovators but not enough seasoned vets. We’re keeping the two founders of the business in place and keeping operations all the same, we’re just adding more fuel through added capital to help it scale.

Say we go and buy several CPG brands now, we can use our own raw ingredients to then supply them, so our gross profit margins will go from 50% to 70% as we’re able to capture added margin through vertical integration.

Another company we acquired for $8 million US dollars several months ago is Sapientia, one of the leading extrusion companies in the world. The founder there invented the twisted Cheeto and he also worked on the Frito Lays team that developed the original Cheeto. Since then, he has created a healthier alternative plant-based Cheeto with less fat, less calories and less carbs. we’ve got these rolling out to several hundred stores in Q4 of this year.

We’ve got a whole slew of other companies that we’re working on. Our primary focus now is CPG acquisitions so we can incorporate all different products into our company and use our experience of growing ecommerce brands and using digital marketing to help those brands scale.

We typically like to keep the founding teams intact when we acquire businesses. Although we might add a few directors to the board, we’re certainly keeping the original executives and empowering them to focus on development and growth instead of capital raising. Then we incentivise them through ownership and shares of our company.

What specific traits do you look for in potential acquisitions?

To narrow it down, we’re trying to go after higher-margin businesses that already have established sales and distribution channels. We want to find a company that has recently gotten into Costco or Walmart or one of the other major retailers but doesn’t have the capital to scale the business, despite having a great product. They’ve got proof of concept and they’ve got a team that is right at the centre of the plant-based food industry.

I think areas like milk-alternatives are pretty saturated with a lot of competition. There’s also a lot of competition in traditional plant-based burgers so we likely won’t look in those subsectors. Unique areas we’re looking at are baby foods, pork and poultry, pet food, or plant-based jerky. Those areas are not as overdone and you can still find companies that need help scaling and are right in that crux with a solid proof of concept already determined. We’ve got several different non-binding LOIs that are already signed but they’re not announced yet.

The plant-based sector is generally a low-margin one due to extensive processing and expensive ingredients, how do you assist businesses in increasing their gross margins?

Some companies have a harder-time because they’re competing in spaces that are overly-saturated. I used milk-alternatives as an example earlier but let’s use the plant-based patty example now. There are so many companies manufacturing plant-based patties so many start to compete on price, meaning a lower sales price and naturally a lower margin.

It’s a bit of a balancing act to be honest, you have to find companies that are in unique sectors that still can capture a bigger chunk of the margin spectrum than others.

I think it also comes down to the brand being a powerful aspect of the business and helping to gain that initial traction. You can determine that in part by what stores you stock with and seeing how other distributors work. If a company doesn’t have long-term supply agreements with their manufacturers it it going to face difficulties. Good partnerships mean so much.

Belle Pulses supplies its raw ingredients to food companies and we don’t have to mark the product up as much if we have enough long-standing, solid distribution deals in place. We give those companies a good deal and that’s captured in their margins.