Online food company Misfits Market acquires Imperfect Foods

Misfits Market is acquiring Imperfect Foods in an all-stock deal, Abhi Ramesh, founder and CEO of Misfits Market, told TechCrunch.

The two online grocery platforms, Misfits Market, have raised nearly $530 million since their inception in 2018, and most recently a $200 million Series C funding round in 2021, which raised its valuation to over a billion dollars. Meanwhile, Imperfect Foods, founded in 2015 to save and redistribute merchandise, grossed a total of $229 million, including a Series D of $110 million last year.

Although Ramesh declined to disclose the valuation of the deal, he said that as online grocery platforms combined, it would accelerate Misfits Market to $1 billion in sales and reach the profitability at the beginning of 2024, which would not necessarily be possible in two separate companies.

"Scale is what will drive long-term online grocery profitability and unit economic efficiency," he said. "Up to probably close to $1 billion in revenue, it's very difficult for an online grocery business to even come close to profitability."

Indeed, the two companies have similar financial and cultural synergies, Ramesh said, including a focus on eliminating food waste. In the United States, this affects between 30% and 40% of the food supply, driving up costs, companies say. They estimated that they collectively "saved nearly 500 million pounds of food that would otherwise have been wasted," Imperfect Foods CEO Dan Park said in a statement.

This is Misfits Market's first acquisition and is particularly fitting given the online grocery environment of the past few years, Ramesh said. He has long believed that the food and grocery e-commerce space is “ripe for consolidation” and has seen a wave of it happening in 2020 and 2021; for example, HelloFresh acquired both Factor75 and Youfoodz.

With a strong balance sheet, the company has seen a few deals come forward, but Ramesh said the company isn't very interested in pursuing them. Then, a few months ago, he was introduced to one of Imperfect Foods' investors and discussed Imperfect after a round of funding, but it was a tough market for capital.

"We've known Imperfect for a few years because we're in the same space and we're the two big names people are talking about," he added. "These discussions then turned into 'there aren't two companies that are as synergistic as these two companies, what if we discuss something more strategic?' That's when we seriously started looking into that."

The acquisition is still subject to regulatory approvals and closing, but Ramesh expects that after closing it will take about a year for the two companies, which will have a total of 3,000 employees, to s fully integrate. He will serve as CEO of the combined company, and executives from Imperfect Foods will join the Misfits Market leadership team.

Park, who joined Imperfect Foods as CEO in January, will advise on transition and integration, and then “will likely transition after integration,” Ramesh said.

The online grocery industry in the United States is expected to be a $187.7 billion industry by 2024, up from $95.8 billion in 2020. However, as mentioned by Ramesh , it is difficult to achieve profitability in this industry, as sales have stabilized in the past two years. Some companies had to lay off and exit the markets because they "burned a huge amount of cash and didn't raise capital", and the public markets don't like that, he added. p>

On the contrary, Ramesh is adamant that Misfits Market is going to be the exception and eventually go public.

“That would be the immediate next step for us,” he said. "When we're profitable, we'll be able to take on all these huge incumbents."

Wilson Sonsini Goodrich & Rosati is acting as legal counsel...