Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Freeze-Dried Candy Companies
Transcript
- Lucas: So Luna, when was the last time you had a freeze-dried Skittle? Luna: Honestly? Never. But I've seen the videos — those huge, puffy, crunchy things that people buy by the bag on TikTok. Lucas: Right, exactly. That's the phenomenon we're talking about today. Freeze-dried candy — Skittles, Starburst, even Warheads — has become a legitimate consumer category. And as of late 2025, private equity is starting to take it seriously. Luna: Wait, seriously? Like, firms are writing checks for freeze-dried candy companies? Lucas: Yes. The most concrete example I've found: Capview Partners — a lower middle market private equity firm based in Dallas — acquired Impact Confections in the fourth quarter of last year. Impact Confections is the company behind Warheads, plus a bunch of other novelty candies. And part of their growth plan involves expanding their freeze-dried line. Luna: Interesting. So this is less about a pure-play freeze-dried startup and more about a roll-up thesis — buying a legacy novelty candy platform and using freeze-drying as a growth vector. Lucas: Exactly. And that's the pattern across several deals I've been tracking. There's a firm called KarpReilly that invested in a company called Candy Dynamics earlier in 2025 — they make Toxic Waste, another sour candy. And there's buzz that they're looking at freeze-dried capabilities as well. Luna: So what's the unit economics? I assume the margin structure is pretty different from a standard candy bar. Lucas: Drastically different. A standard bag of Skittles retails for about $1.29 for a 2.17-ounce bag at a convenience store. Freeze-dried Skittles — same weight equivalent — can sell for $4.99 to $7.99. You're paying a four-to-six-times premium for a process that essentially removes the water and puffs up the candy. Luna: And what does the freeze-drying actually cost? I assume there's capex involved. Lucas: Big time. A commercial freeze-dryer — the kind you'd need for batch production — runs between $50,000 and $200,000 per unit. The process is energy-intensive and slow. A single batch can take 24 to 48 hours. So the cost of goods sold is significantly higher than traditional candy manufacturing. But if you're selling at a seven-dollar price point, the gross margin can still be 60 to 70 percent. Luna: That's impressive. But it's also very trend-dependent. TikTok made this stuff blow up. What happens when the algorithm moves on? Lucas: That's the key risk. Private equity firms are betting that freeze-dried candy graduates from fad to staple — like how gourmet popcorn or kettle corn became permanent snack categories. But it's not guaranteed. Impact Confections has other revenue streams — Warheads, Pop Rocks, etc. — so the freeze-dried line is a growth add-on, not the whole thesis. Luna: So it's a classic PE move: buy a platform with stable cash flows, bolt on a high-growth trend, and see if you can scale it before the trend fades. Lucas: Nail on the head. And the consolidation angle is real. The freeze-dried candy market right now is highly fragmented — there are dozens of small operators selling on Etsy, Amazon, and at county fairs. A well-capitalized pe backed company can buy up a few of those, centralize production, and get better terms on raw candy and packaging. Luna: You know, speaking of the business model, this is a good moment to mention that we keep this show completely ad-free. No sponsors, no commercials. And that's a choice we've made from day one because we want the conversation to be honest and not interrupted by someone trying to sell you something. If you've gotten value from these episodes — maybe a new way to think about a deal or an industry — and you want to support that independence, we've set up a simple page at buy me a coffee dot com slash fexingo. No pressure, genuinely. Just a way for listeners who find this useful to help keep it going. Lucas: Yeah, exactly. It's a small gesture that makes a big difference for us. And it lets us stay focused on the stories that matter. So thank you to anyone who's considered it. Luna: Alright, back to the candy. Lucas, you mentioned the fragmented market — are there any other PE firms you've seen circling? Lucas: A couple. There's a firm called Riverside Company that's been active in the novelty candy space for years — they owned a company called CandyRific at one point. And I've heard from industry sources that at least two other lower middle market firms are doing diligence on freeze-dried candy aggregators right now. Luna: So the roll-up is already happening, but it's early. What does the endgame look like? A sale to a large confectionery company like Mars or Hershey? Lucas: That's the most likely exit. Large candy manufacturers have been slow to adopt freeze-drying internally — they're focused on core SKUs and supply chain efficiency. A PE firm can build a dedicated freeze-dried platform, prove the unit economics at scale, and then sell it to a strategic buyer who wants instant exposure to the category. Luna: What about the supply chain for the freeze-drying equipment itself? I imagine there aren't that many manufacturers. Lucas: That's a real bottleneck. The two main industrial freeze-dryer makers are Harvest Right — which is mostly known for home-scale machines — and a few European industrial suppliers. Scaling up requires ordering equipment months in advance. So there's a capacity constraint that could slow down roll-ups. Luna: Which also means the first movers who lock up equipment capacity have an advantage. Lucas: Exactly. And that's exactly the kind of structural advantage PE firms look for. If Capview can secure a multi-year supply of freeze-drying capacity before competitors, they can capture market share and make it harder for new entrants. Luna: One more thing — are there any regulatory or food safety issues specific to freeze-dried candy? Lucas: A few. Freeze-drying removes water, which inhibits microbial growth, so shelf stability is good. But the process has to be carefully controlled to prevent contamination. The FDA treats freeze-dried candy the same as any confectionery — it's generally recognized as safe. However, because these products are often marketed as 'crunchy' and 'novel,' there's a risk of choking hazard claims, especially for small kids. I've seen at least one class-action lawsuit filed against a freeze-dried candy brand alleging misleading texture warnings. Luna: So there's litigation risk baked in. Another factor PE has to price into their models. Lucas: Right. And that's actually why I think the Capview deal is smart. Impact Confections already has liability insurance, established quality control, and distribution relationships. Adding freeze-dried to an existing infrastructure is less risky than building from scratch. Luna: Alright, let's zoom out. What's the bigger lesson here for someone listening who wants to spot the next PE roll-up target? Lucas: I think the pattern is: look for a product that has a passionate niche following, a high gross margin, and a fragmented supply base. Freeze-dried candy checks all three. The trend layer — TikTok — provides the demand pop, but the underlying economics need to work without the trend. For freeze-dried candy, the margin structure holds up even if growth slows. Luna: And the PE play is about professionalizing the category — better packaging, better distribution, better cost control. Lucas: Exactly. The same playbook we've seen in dog daycares, dental practices, and hearing aid dispensaries — just applied to a very different product. It's a reminder that private equity isn't only about tech or healthcare. It's about finding any industry where operational improvements can unlock value. Luna: And sometimes that industry is candy that crunches when you bite it. Lucas: Sometimes it is. And it's worth a lot more than you'd think.