Could Annie's trigger a string of IPOs for the natural and organic sector?

Annie's decision to raise $100 million in an initial public offering is considered a win-win-win-win for the company, investors, consumers, and other natural and organic companies. Could the mac and cheese maker influence its peers to go public, too?

When organic mac and cheese maker Annie’s announced Dec. 2 that it plans to go public, the news fired up financial analysts and potential investors who would love to get a piece of the growing and profitable natural and organic foods company. Annie’s decision to raise $100 million through an initial public offering was also favorably received by many in the natural and organic products industry.

“This IPO will be a win-win for investors and consumers,” said Robyn O’Brien, a former financial analyst and author of The Unhealthy Truth: How Our Food Is Making Us Sick and What We Can Do About It. “It will give investors an opportunity to be part of a fast-growing category in the grocery sector, and it will give Annie’s capital to expand its product offerings, get into more stores, and give more Americans affordable access to clean and safe food.”

O’Brien is so bullish on Annie’s move to go public that she believes it could actually be a happy harbinger of things to come for the broader natural and organic market. “This is an exciting opportunity for the company and for the sector,” O’Brien said. “I could see other fast-growing companies such as Justin’s Nut Butter doing the same thing five or 10 years from now.”

Although its IPO date has not yet been set, Annie’s plans to list its shares on the New York Stock Exchange under the apropos ticker symbol “BNNY,” which pays tribute to the company’s mascot Bernie the Bunny. The company says it will use the money raised in its public offering to grow its distribution and product line, which currently features 125 SKUs such as Cheddar Bunnies and gluten-free mac and cheese.

“Because our products are profitable and attractive to retailers, we believe we can continue to expand in the mainstream grocery and mass merchandiser channels, while continuing to innovate and grow our sales in the natural retailer channel,” the company wrote in its S-1 filing.

A profitable IPO prospect

Compared to other recent IPOs, Annie’s planned offering is relatively small and unlikely to generate the buzz that technology companies such as Facebook, LinkedIn and Groupon have engendered amongst the global investment community. However, Annie’s has something that many of tech companies do not: profitability.

According to the company’s filing with the U.S. Securities and Exchange Commission, Annie’s tripled its profit to more than $20 million in the fiscal year ended March 31, 2011. Sales for the year came in at nearly $118 million, up 22 percent from the previous year.

As someone who experienced many IPO road shows in her days as a financial and food industry analyst, O’Brien said Annie’s is likely to be well received by the mostly male investment analysts who hear the company’s IPO pitch. “Many of them have wives at home who are dealing with the health issues created by our current food system,” she said. “I think Annie’s IPO will outperform expectations, and I would love to see it oversubscribed.”

The bunny is not public yet

Once its IPO goes through, Annie’s will join a small but growing roster of publicly traded companies operating in the natural, organic and healthy products market. These include some of the industry’s biggest and most influential players such as Whole Foods Market, United Natural Foods Inc., The Hain Celestial Group and Gaiam.

Still, as investor blogger Chris Katje points out, not all companies that announce IPO plans will make it to market. An unstable market prevents some IPOs, while more attractive acquisition opportunities derail others. “Companies like Annie’s, which appear as if they could be acquired, will sometimes make an announcement to go public to attempt to get rival companies discussing possible bids for their company,” Katje said.

Solera Capital, which has invested $20 million in Annie’s and owns about 90 percent of the company, had been shopping around the company as recently as 2009, when Annie’s was one of the pitch companies at Nutrition Capital Network’s fall investor forum in San Francisco. At the time, Solera was looking for upwards of $200 million for Annie’s, said NCN CEO Grant Ferrier.

“[Solera] was ideally looking for a strategic acquirer in the model of Kellogg-Kashi, where the acquired retains its culture and team,” Ferrier said. “It could have been a good fit, but [Solera] just didn’t get the price, we assume.”

Like O’Brien, Ferrier said a publicly traded Annie’s could be a good thing for the natural and organic products market. “Personally, I think it’s good for the industry to have more pure-play companies in the mix,” said Ferrier, adding that, of course, much will depend on “how investors and the Street take to it.”

A bright future ahead for Annie’s

Regardless of whether Annie’s becomes a public company, is acquired by a larger food group or other strategic, or remains in Solera’s hands for the time being, the company’s future looks bright.

As Annie’s noted in its S-1 filing, one factor in its favor is the brand’s positioning within the growing natural and organic food category. “Our brand and premium products appeal to our consumers, who tend to be better-educated, be more health-conscious, spend more on food and buy higher-margin items than the average consumer," the company wrote.

The Annie’s brand sells well in both the natural and mass market channels and has gained strong consumer loyalty. In addition, Annie’s has a strong track record of product innovation targeted to parents and their kids. In fact, according to the company’s S-1, 19 percent of Annie’s net sales in fiscal year 2011 were generated by products introduced since the beginning of fiscal year 2009.

But perhaps Annie’s most valuable asset is its management team, which includes John Foraker as CEO; Sarah Bird as senior vice president of marketing and chief mom officer; Robert Kaake as senior vice president and chief innovation officer; and Mark Mortimer as senior vice president of sales and chief customer officer.

“Based on the work I have done with Annie’s, I know that the integrity and ethics of its management team are unparalleled,” O’Brien said.

It’s the strength of this team, O’Brien added, that makes Annie’s an attractive public investment opportunity and that, more importantly, will enable the company to stay true to its founding mission of nourishing the world with healthier food and a commitment to social and environmental responsibility—regardless of its ownership structure.

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