Local Bounti to acquire indoor farming operator Pete’s for $122.5M

Dive Brief:

  • Indoor farming company Local Bounti is acquiring rival Hollandia Produce Group, which grows and sells leafy greens under the name of Pete’s, for $122.5 million. The transaction is expected to close early in the second quarter. 
  • California-based Pete’s has three indoor growing facilities: two in California and one under construction in Georgia. Its greens are distributed to about 10,000 retail locations, including Kroger, Target and Walmart stores. All of Pete’s 130 employees will join Local Bounti, and its management team will remain in place to lead what will become a subsidiary of the firm.
  • The acquisition — Local Bounti’s first since going public through a special purpose acquisition company merger in November — helps the startup quickly expand its indoor farming knowledge and retail footprint.

Dive Insight:

In choosing its first acquisition, Local Bounti is picking a business that will immediately add stability and scale to its operations. 

Founded more than 50 years ago, employee-owned Pete’s adds 25 years of experience in leafy greens and long-term customer relationships to Local Bounti, which was launched only four years ago by two private equity executives.

It also offers some much-needed financial stability: Pete’s revenue totaled $22.7 million in 2021, and it has seen gross margins topping 45% during the past five years, according to a press release. In contrast, Local Bounti reported sales of $638,000 in 2021 versus $82,000 the year prior, due in large part to its SPAC merger. It posted a net loss of $56.1 million in 2021, with gross margins improving to 32% from -11% in the prior year. 

Pete’s main products include roots-on and packaged butter lettuce — it has about an 80% share of the controlled environment agriculture (CEA) market for the Western U.S., according to the press release. In addition, it offers packaged salad and cress, all of which it grows hydroponically in computer-controlled greenhouses.

With access to Pete’s retail customer base, which also includes national chains such as Albertsons, Whole Foods and AmazonFresh, Montana-based Local Bounti would be able to essentially expand its total retail distribution roughly 20-fold. Its leafy greens, salad mixes and herbs are currently supplied to about 500 stores in the western U.S.

“This synergistic acquisition is a unique opportunity to combine a highly complementary and profitable CEA market leader in Pete’s with Local Bounti’s technological solutions to significantly accelerate market access for our superior produce varieties and create one of the largest CEA companies in the United States,” Craig Hurlbert, Local Bounti’s co-CEO, said a statement.

Local Bounti plans to install its Stack & Flow vertical farming technology at Pete’s three facilities, and ramp up production. The CEA firm has one facility of its own in Hamilton, Montana. It was set to break ground on a second facility in Pasco, Washington, that would have been operational this year, but announced that it would be pausing the project to make sure that its design is “fully optimized to drive best-in-class unit economics and that synergies with Pete’s existing growing systems are considered prior to continuing construction.” It’s also not clear how the deal would affect other future facilities in the works, including two planned for Colorado and Nevada. 

The indoor agriculture space has struggled with establishing sustainable growth — and profitability — through the cost-intensive nature of the operations and the pressure to increase efficiencies.

In February, AppHarvest announced a net loss of $166.2 million for its fiscal year 2021, which included $60 million from its purchase of an AI-enabled robotics firm to help with harvesting. In addition to Local Bounti, AppHarvest is one of the few publicly traded indoor farming companies, and its stock price has languished since it went public.

For Local Bounti, which has international ambitions and aspirations to expand into other product areas such as salad kits and berries, the Pete’s acquisition will be a critical leg up in the effort. It will immediately go from being a smaller player in an indoor farming sector where several growers are competing for shelf space to having a larger presence and greater recognition among consumers. The increased cash and improved margins expected from the deal also could play a major role in helping it with its expansion efforts.

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