This column focuses on global development issues, with an interest in looking at novel views and perspectives. One of the very important perspectives to consider is that of investment capital. From the “Corners of the World” (COW) recently had a chance to interview Janica Lane, partner, Partnership Capital Growth Advisors, LLC (PCG), a San Francisco, CA-based investment bank focused on advising and investing in the healthy, active and sustainable lifestyle industries. The following includes highlights of that interview.
From the Corners of the World (COW): Provide us with a little background on Partnership Capital Growth Advisors.
Janica Lane (JL): Partnership Capital Growth is a merchant bank that advises and invests in companies in the healthy, active and sustainable living industries. On the investment banking side of our business, we have been the exclusive advisor to companies like CytoSport (Muscle Milk), Designer Whey, Sambazon, KIND Healthy Snacks, Sahale Snacks, Promax, etc. In vitamins and supplements, we most recently represented Helsinn Group, a Swiss pharmaceutical company, which invested in Thorne Research.
PCGA was founded in 2006 by Brent Knudsen. His background is (1) entrepreneurial, having founded and/or worked with companies like Newport Surf Co. (sold to Billabong), Full Force (sold to Specialized), and GolfWeb (acquired by SportsLine USA); (2) managerial, having been an executive at Price Club, then Costco and serving in various roles at portfolio companies; and (3) financial, having worked at private equity firm North Castle Partners (NCP). While at NCP, he identified a need in the market for an advisory firm focused on the health and wellness sector, so left to start PCGA.
Our mission is: To create superior economic and social value through advising and investing in great companies in the areas of healthy, active and sustainable living.
COW: Why the focus on the healthy, active and sustainable living markets/categories?
JL: As health and wellness continue to dominate consumers’ lives, our marketplace has continued to innovate, grow and succeed. This is no longer a niche-y little market. We segment healthy, active and sustainable living into six main verticals, each with several key sub-categories: 1-Healthy food; 2-Natural home/living; 3-Natural personal care; 4-Sports & fitness; 5-Outdoor recreation; and 6-Sustainability & environment
Combined, these verticals make up a market that we estimate at $1 trillion and counting. Individuals, corporations and governments can’t afford to ignore this sector given the potential impacts on health and wellbeing, disease prevention, quality of life, etc.
COW: How many of your client companies have a strong international emphasis?
JL: We work with clients in the U.S. and abroad. Clients based outside the U.S. have included Helsinn Group (Lugano, Switzerland), Planet Organic (Edmonton, Canada), Fitness World (Vancouver, Canada), Spa Lady (Calgary, Canada), MS Icelandic Dairies (Iceland) and World Health Club (Calgary, Canada).
Other current and former clients of ours are U.S.-based but either sell products internationally, have aspirations to do so, or have non-U.S. manufacturing or supply sources.
As an example, MonaVie is a Utah-based business that sells its products via person-to-person distribution in the U.S. and abroad. International sales has been a significant growth engine for the company over the last few years.
Similarly, Sambazon is a U.S.-based company with an international supply chain. It owns a manufacturing facility in Brazil, which processes açai for use in its branded beverages, smoothie packs, supplements, etc.
COW: Is the international emphasis on developed or developing countries?
JL: For selling products/service, the focus is on both developed and developing countries. BRIC (Brazil, Russia, India, China) is still a buzzword and a source of growth, though the BRIC markets can be difficult to enter. Depending on the product/service, other developing markets are attractive as well.
Meanwhile, Europe is viewed as a logical place for expansion for many of our North American clients. However, given the small size of some of the countries, differences in packaging/labeling required, different ways of getting to market in each country, and differences in where products are sold, Europe can be challenging and best handled through a distributor or other partner with expertise in the area.
For supply, both developed and developing countries can be viable supply sources. We are seeing some evidence of manufacturing returning to or expanding in the U.S. (as with pet food, some supplements, etc.) but also a continued trend in outsourcing mainly to developing countries.
COW: Has PCG or other investment companies, to your knowledge, made significant investments offshore and if so, in which countries and markets?
JL: Some investment groups have a very strong international focus. For example, firms like KKR and Blackstone have made investments around the globe.
Another approach is that taken by Baird Capital Partners. It has a team of people on the ground in Asia, whose main mission is to optimize sourcing, manufacturing and other supply chain activities for portfolio companies that can benefit from such.
We are increasingly seeing mid-size private equity firms take an interest in international markets, and we believe that both developed and developing markets will receive more investment capital from U.S.-based private equity firms in the future.
COW: What are the sweet spots for opportunities in foreign investments?
JL: For a U.S.-based investor or acquirer, part of the lure might be bringing a foreign company into the U.S. market (and that may also be what convinces a foreign company to partner with a particular U.S. investor—it’s definitely a two-way street!). In addition, everyone is talking about “the growing middle class in China” and other BRIC countries, so companies well positioned to enter these markets (especially China) and capitalize on those trends will likely be of interest to investors.
COW: Are the best candidates for investment foreign companies that have already partnered with a U.S. based company, those focusing on U.S. markets, or U.S. companies focusing on foreign markets?
JL: I believe companies with international presence, whether foreign or U.S.-based, are of interest to investors. In the case of many developing nations, it seems that U.S.-made products carry cachet, so a U.S. company might be an attractive option. On the other hand, many companies based outside North America are often more global than their American counterparts and may have more savvy/capability in operating in international markets and hence more opportunity to grow.
COW: How does this all work with social and sustainable investment in developing countries? Is this a completely different realm of finance? Can you summarize some of the differences?
JL: Some social and sustainable investment in developing countries is through non-profit, philanthropic and/or government organizations. Other investment of this sort could be from private equity capital focused on impact investing, where economic returns still matter, but so do social and environmental ones.
COW: Is social investing compatible with commercial and financial expectations?
JL: Absolutely! TBL Capital, a fund managed by PCG, focuses on social investing. Its success stories include Gaia Herbs and Numi Tea, companies that are economically viable and also adhere to strong social and environmental standards. We actually believe that companies with social and environmental goals may be better off economically than some of their peers.
COW: What advice would you give to entrepreneurs in developing countries looking for capital to expand or develop their products in the U.S. or elsewhere?
JL: Look for either a strategic partner based in the U.S. or a U.S. investor with proven expertise in their industry and in penetrating new markets with a particular product/service. Identify resources in your country or the U.S., which assist with import/export.
COW: What about U.S.-based entrepreneurs looking to expand their market reach into developing countries?
JL: Pick and choose your markets wisely, and consider the tradeoff between broad presence and deep penetration.
COW: Can you discuss some of the important trends that have international implications?
JL: Healthy food exhibits many international trends. As examples:
• Ethnic Foods and Ingredients like lentils, chickpeas, fava beans and a variety of spices are currently in high demand and showing up in a range of products.
• Supply chains have become more international—think chia, coconut, açai, etc.
• Ancient grains such as quinoa, an Andean crop, have become staples in many U.S. households.
• Fermented food, most common in Asia, now have a very global reach, with widespread enjoyment of products like kombucha and kimchi.
COW: What criteria does PCG use to identify new opportunities?
JL: Our founder Brent often points to the “2 P’s, 2 C’s and 2 F’s” when evaluating companies, meaning: 2 P’s—People and Products; 2 C’s—Customers and Competitors; 2 F’s—Facilities (including manufacturing capabilities) and Financials. On top of that, I layer growth strategy and market penetration strategy, both of which are critical to understanding a company’s future upside.
Editor’s note: Janica Lane is a partner at PCGA, where she is primarily responsible for leading transaction processes and sourcing opportunities with new partner companies. Her work has spanned a range of industries, and she is particularly interested in businesses in the healthy food; direct-to-consumer; vitamin, mineral and supplement; and personal care/beauty categories. She joined PCGA in 2006. She is also the author of this month’s sports nutrition update.