On the night of Tuesday, March 27, Berkeley, Calif.-based natural & organic food maker Annie’s Inc. (BNNY) made its stock market debut, offering up 5 million shares in its initial public offering. Shares—initially priced at $19—climbed over 70 percent by midday Wednesday to reach $33. Solera Capital, the private equity owners of Annie’s, sold 3.7 million of the 5 million shares made available, lessening its stake in the company from 91 percent to 63 percent. Annie’s raised $95 million on the offering.
Early expectations of stock value sat in the range of anywhere from $14 to $16, and the jump to $19 shows some confidence on the part of the advisors that the IPO would still pop at a higher price. With the climb to $33, Annie’s has essentially doubled its enterprise value from around $250 million to well over $500 million.
This impressive initial performance shores up what many had previously predicted—that the Annie’s IPO will be a bellwether event for the natural products industry.
David Thibodeau, partner at merchant bank Partnership Capital Growth Advisors (PCGA), called the debut a great outcome for Annie’s shareholders. “This is only the first day of a very long journey for Annie’s as a public company. From a broader perspective, it confirms there is renewed interest in the natural & organic sector.”
Annie's success is 'no surprise'
Robyn O’Brien, former financial analyst and head of the Allergy Kids Foundation, said she’s not surprised at all, because consumers have been clamoring for cleaner foods and Annie’s has long been a leader in that space.
“Annie's was ahead of the curve, opting out of synthetic ingredients in their manufacturing processes and prioritizing human health," she said. "This, as well as stock pricing above an already once-raised forecast for the pricing, is an acknowledgement of that leadership and the growth anticipated due to increased opportunities and consumer demand.”
Bob Burke of Natural Products Consulting told Nutrition Business Journal (NBJ) that Annie’s definitely benefits from being so engaged with consumers. “It’s a very popular brand. They’re kid-oriented and customers are very emotionally connected to the company. It reminds me of previous generations, when, as a kid, you might get a share of Disney stock for your birthday. I think Annie’s will get some of that, cementing loyalty among their customers.”
Consumers shifting to cleaner foods
What may be more significant, though, is the attention Annie’s has garnered from Wall Street and mainstream institutional investors. That Annie’s would succeed is a no-brainer: The company has a great core brand with crossover appeal, and its macaroni & cheese and snack lines will continue to steal share from their conventional counterparts. But it really speaks to the growing mainstream consumer demand for cleaner, more natural foods.
The management team at Annie’s—led by CEO John Foraker—has also done a remarkable job maintaining the company’s family feel, while still generating rapid sales growth and enviable profits. Annie’s grew 23 percent in 2011 to reach $118 million in sales. For successfully balancing profitability with integrity, NBJ awarded the Annie’s team the 2011 NBJ Management Achievement Award in January.
What natural & organic company is next?
Consumer connection to natural food companies is nothing new. The natural & organic space garners a great deal of loyalty, and consumers feel a sense of ownership every time they buy.
And natural & organic food is a high-growth market—natural & organic food sales grew at a 12 percent compound annual growth rate from 2000 to 2010, according to NBJ data. IPOs seem like a natural fit for the space. But public offerings have been few and far between in natural products over the last decade. The burdens of quarterly financial reporting and constantly kowtowing to investors has steered many away from the public market.
Going public was more common in the '90s. Smaller companies like Celestial Seasonings and Boca Burger could survive out there, but that was before the dotcom collapse and the Enron scandal prompted the government to enact more onerous regulation on public companies.
But now that Annie’s has broken down the door to the public market, natural companies of similar scale and crossover appeal—say Clif Bar or Amy’s Kitchen—may take a closer look at an IPO for future plans.
The natural IPOs of the future
And with the pending passage of the JOBS Act, we may even see smaller companies approach the public market. The JOBS Act—which received a bipartisan, 380-to-41 vote of approval in the House of Representatives on March 27—designates a category of smaller, “emerging growth companies” that are exempt from certain regulations and financial disclosure obligations when proceeding with an IPO. Looser regulation will likely be an incentive for small to midsize companies to seek the public market.
Private equity and strategic buyers are the typical exits for entrepreneurial and established natural products companies—consider General Mills' Feb. 29 purchase of Food Should Taste Good, or Dole’s March 2 acquisition of Mrs. May’s Naturals. According to PCGA's Thibodeau: "Private equity has been the de facto public market for the last ten years."
But companies have more options now. Very committed founders and owners—like you’d find at Nature’s Path—might even put more consideration into an employee stock ownership program (ESOP), as the owners of Bob’s Red Mill did in 2010. (Bob’s Red Mill won the 2011 NBJ Philanthropy Award in part because of the ESOP.)
It’s too early to tell whether the next generation of small to midsize natural & organic companies will seek out the public market, but growing consumer demand is only going to push natural deeper into the mainstream market. The bunny has certainly broken the ice, and Wall Street is interested.