But, they are proceeding more cautiously than even just three or four months ago and placing a bigger emphasis on entrepreneurs’ track records, Lloyd Greif, president and CEO of Greif & Co., which has engineered a range of transactions from initial public offerings and private placement financings to debt securities ranging from $25m to $2b.
“It is a pretty active environment, right now. Obviously, there are clouds on the horizon,” but there are still financing options for companies that hold significant promise, he told attendees at the annual IFT FIRST conference in Chicago last month.
“I can tell you that it all starts and stops with management. So, if you’re trying to get a deal done in this environment, you better have a track record. A track record is key. So, having been there and done it before. And we typically know that investors are more confident where they are backing a team and know it is not all about one strong entrepreneur, but multiple strong executives – preferably ones who’ve done it before as a team, but even if they haven’t done it before as a team the person who is in charge has done it,” he said.
They also are more likely to invest in a private company than one that is trying to go public, he added.
He explained that before the pandemic, special purpose acquisition companies were a popular funding option that allowed experienced management teams and sponsors to take fast-growing and promising companies public quickly, but those have quickly fallen out of favor.
“Most SPACs are underwater. They have crashed and burned, and the vast majority of them are down a lot more then the market, which is down about 20-25% year-to-date,” he said.
He added the current environment also isn’t ideal for more traditional initial public offerings as investors become increasingly cautious and, therefore, are more likely to invest their money in treasury bills rather than equities.
The exception is private equity, which Greif said has “record amounts of capital and they’re looking for investments.”
Minority investments gain popularity
However, the type of investments they want to make have scaled down so that they are more likely to take minority investment than an outright acquisition with sky high multiples, as was the case for a while, he said.
“Some will even do something on a pre-revenue basis, but that is usually harder to get now and that is really going to reflect a good management team, a good product and a market need in a hot area,” he said.
“Beyond that, if you’re looking for later rounds for mature companies, they need to being making money now, whereas three or four months ago, people didn’t care as much, now if you’ve been around a few years, you’ve got to have meaningful revenues and they expect you to have profits,” he said.
What’s hot from investors’ view?
According to Greif, investors are most interested in the obvious areas, like plant-based, but also better-for-you and functional solutions, such as nutraceuticals or healthy products that support consumers’ well-being.
Surprisingly, he also called out traditional animal protein as a space in which he is active. But he qualified that in the current economic environment players at opposite ends of the spectrum – so steaks and chops at the high end and affordable ground meat at the low end – better reflect current shopper needs and are easier to sell to investors.
Overall though, he said the food and beverage space is generally recession-proof or at least recession-resistant, making it an appealing space for investors operating in today’s economic landscape.