Equilibrium Capital on Revol Greens & Houwelings Investments: Access to Equity Capital is a Competitive Advantage


There’s a new kid on the block investing in the greenhouse industry. Early this year, Revol Greens announced a facility equity partnership with Equilibrium Capital – and just two weeks later Houweling’s Group was connected to the same investment company. Then there’s a third investment, in a yet to-be-named hydroponic berry producer. Time for a chat with David Chen, CEO with the firm. “We definitely look for more opportunities to expand in the greenhouse industry.”

‘Strategic advantage’
“Something that’s hard to understand for a lot of farmers is that when an industry starts to accelerate, the access to several forms of capital, especially equity capital, becomes a strategic advantage. Most growers and operators have been used to access to bank debt, and have interpreted that as all they needed. What we see is that the growth has accelerated in the US, following a growing market demand. The expansion is no longer five hectares, ten hectares, the expansion is now twenty, thirty hectares, maybe fifty hectares. In this accelerating industry, growers are discovering that access to all forms of equity capital is a competitive advantage,” David Chen with Equilibrium Capital explains when asked about the growing role of investors and foreign capital in horticulture.

“I think the first wave were a number of large tomato operators that took on some outside investors”, he continues. “But I think the real start of this was when the leader in the greenhouse tomato market started to expand and accelerate the amount of acreage that they partnered with and owned in their corporation. And then when they took on some private equity, I think that that signalled the next chapter of this industry.”

In January Revol Greens, a Minnesota greenhouse farm, announced a facility equity partnership with Equilibrium Capital to drive expansion in 2019.

And now Equilibrium Capital has taken its first steps in this business as well. The company has an extensive portfolio in wastewater, energy facilities and permanent crops, and has recently expanded into the horticultural industry. “Investing in agricultural infrastructure”, he calls their strategy, explaining that the company has no ambition to be involved in the day-to-day running of the companies they invest in. Rather than participating in the company, they extend the greenhouse operator’s balance sheet.

To make it concrete: Equilibrium is not investing in greenhouse operating companies, but is buying greenhouses and building out future greenhouses. By now, they’ve invested over $100 million in three large-scale greenhouse operations in California, Utah, and Minnesota and they plan to commit $2 billion to indoor food production over the next five years.

“Our objective is to acquire or build a set of greenhouses and hold onto them for a long period of time. To growers, we operate like a landlord. We give the grower, the operator of the farm, more options to accelerate and manage their growth.”

For example, in the Revol Greens investment, the company bought the existing greenhouse, making it possible for Revol to lease these premises and free up capital and begin plans for expansion. “We do not own any part of Revol. We own the greenhouse and financed the expansion of the greenhouse itself”, he says, comparing it to when companies like FedEx or DHL expand. “They don’t own their distribution center real estate. They own the business and operate the business inside the real estate. Airlines don’t own their terminals, Microsoft don’t own their data centers buildings.

The main advantage of the Equilibrium business model, David explains, is that a grower remains independent:  “We just get him some fuel in the tank – and upgrade his motor at the same time!”

To Equilibrium themselves, it provides a safe solution. “In agriculture, putting too much debt is always dangerous. That’s why our strategy has been to stay an equity investor, and to hold to very tight debt equity ratios, where the investment is still dominated by the equity.”

At the start of this month it was announced that Houweling’s Group and Equilibrium have partnered  to invest in modernizing Houweling’s existing facilities in California, expanding the production capacity at their Utah facility, and accelerating the company’s growth.

Portfolio expansion
Having gotten a taste of the market with their recent acquisitions, Equilibrium is looking to expand their portfolio in the horticultural industry, in both existing greenhouses and expansion. Looking at the industry in general, David sees tremendous growth ahead in the next decade. “I can’t emphasize enough what a driver climate is in the development of horticulture in non-Mediterranean growing climates. Even the regions that normally have stable weather have to get used to less table weather. Then there’s the desire for regionality and for greater variation in the food that we eat. All together this is pushing and propelling indoor agriculture forward. Over the next decade, we’re going to see acquisitions, mergers. You’re going to see food companies outside of horticulture begin to invest in this area”, he speaks. “We not only want to participate in that movement, but to be a leader and pioneer in the financing of that growth. We’re believers that a horizontal high-tech greenhouse is going to become a mainstay of vegetable and fruit growing in this next decade, also outside of northern Europe.”

Like many participants in the industry, David emphasizes the importance of knowledge of farming. “Because greenhouses are hot right now, everybody reads about it and says, ‘oh, I can do that’. The only caution that we have is: if you don’t have experience, then at least have humility! The common belief seems to be there’s three pipes at one end of the greenhouse – putting in seed, water and fertilizers, and a fourth one on the other side, where the tomatoes come out. Well, we know there’s a lot more going on. That’s why we’re looking for the best, most experienced operators in the category, and like to be partners with them for their growth.”

In this outlook, he’s not afraid to cross the US borders. “If some of the Dutch growers were interested in expansion outside of Northern Europe, we would be a great partner for them to expand into Asia, North America, or even South America. Let’s put it like this: if experienced growers bring their knowledge to the table, Equilibrium provides the necessary capital.”

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