The recent announcement of the initial price offering of Annie’s Inc. has piqued my interest for a couple of reasons. The first is that every trip to the local grocery store (Meijer for me normally) I see their products all over in the health foods aisle. The company has a diverse range of products offered in organic and gluten free categories. Also, when writing a recent article on Smart Balance
(SMBL) and their acquisition of Glutino, Annie’s was one of the major competitors I found in the growing gluten free food categories with limited investing opportunites.
Annie’s will be selling $100 million in stock in its initial price offering. The organic and natural food company will be raising money for working capital purposes. No date or pricing terms have been announced yet. Credit Suisse (NYSE:CS
) and JP Morgan (NYSE:JPM
) will be the lead underwriters on the IPO. Annie’s will be listing its shares on the New York Stock Exchange under the symbol “BNNY”. The company’s mascot is a rabbit named Bernie, which probably influenced their ticker.
The announcement of the initial price offering adds this company to the recent growing list of companies attempting to go public as the market starts to come back. Some companies that announce IPO terms never make it to the market for numerous reasons. Companies pull their IPOs if the market seems shaky or their will not be investor demand for their company's shares. After all, companies attempt to go public at the right time to ensure they will sell the full amount of shares at the highest valuation. Companies like Annies, which appear as if they could be acquired, will sometime make an announcement to go public, to attempt to get rival companies discussing possible bids for their company. So in writing this article, it is possible that shares of Annie's will never be publicly traded, but I believe it is worth sharing this information with everyone to keep on the radar for investors.
Annie’s has a portfolio of over 125 products which are currently located in 25,00 retail locations. The company’s products are categorized under three main categories:
· Meals – Mac and Cheese, Canned Meals, Pastas, Cereals
· Snacks – Crackers, Pretzels, Graham Crackers, Fruit Snacks
· Dressings – Dressings, Condiments, Barbeque Sauce
Along with having products that are all organic the company also has numerous gluten free food products including: dressing, condiments, crackers, pretzels, and pastas.
Annie’s enjoys the number one market position in the natural and organic market for:
-Mac and Cheese
The organic macaroni and cheese made by Annie’s enjoys the market position of number two in the United States sales, trailing only the iconic blue box Mac and Cheese made and sold by Kraft Foods (KFT
Annie’s sells its products to mass merchandisers, natural retailers, and other food outlets. Mass Merchandisers made up 30% of sales in 2011 from stores like Wal Mart (NYSE:WMT
), Target (NYSE:TGT
), and Costco (NASDAQ:COST
). Natural Retailers including Whole Foods (WFM) and Trader Joes made up 28% of sales in 2011. The two leading customers for Annie’s in 2011 were Target and Costco, who both made up 12% of net sales.
Organic Food Market
The United States represents a huge market for Annie’s products. The country is the number one in sales for organic products with sales of $40 billion in 2010. From 2000 to 2010 the organic food market saw a compound annual growth rate of 12%. In a survey of Americans, 75% of people had made at least one purchase of a natural or organic product during 2010. Thirty three percent of survey participants reported making an organic purchase on a monthly base, up from a reported twenty two percent in 2000. The organic food market in the United States is predicted to rise 8% from 2011 to 2013 annually.
The Napa, California based Annie’s was founded in 1989. The company is currently owned and controlled by two large companies. Solera Capital owns 90.5% and Najeti Ventures owns 6.5%. Prior to Annie’s Incorporated, founder Annie Withey had developed and started Smartfoods as a company in 1982. Mrs. Withey and her husband later sold Smartfoods to Pepsi/Frito Lay for $15 million in 1986.
Annie’s reports its business strategy in its prospectus with three major goals:
· 1. Pursue Top Line Growth
-Expand Distribution and Improve Placement.
-Expand Household Penetration and Consumer Base.
-Continue Innovation and Brand Extensions.
· 2. Remain Authentic: Stay True to Our Values
· 3. Invest in Infrastructure and Capabilities.
Annie’s Inc. reported sales of $117.6 million for fiscal 2011 and reported a profit of $15.1 million. Net Sales have increased at a compound annual growth rate of 15.7% from 2007. In 2007, Annie’s reported sales at $65.6 million and a loss of $3.9 million that same year.
The food categories which Annie’s sells products in have a large base of food companies that compete with them. In the IPO prospectus, Annie’s recognizes the following publicly traded companies as key competitors:
-General Mills (NYSE:GIS
-Hain Celestial (NASDAQ:HAIN
-and several small private companies including: Newman’s Own, Nature’s Path, and Cliff Bar and Company.
Net Sales were reported as:
2009: $93.6 Million
2010: $96.0 Million
2011: $117.6 Million
Across the three categories the company breaks its products into:
2009: Meals 45%, Snacks 23%, Dressings 32%
2010: Meals 46%, Snacks 28%, Dressings 26%
2011: Meals 42%, Snacks 38%, Dressings 20%
As I wrote in my Smart Balance article where I recognized Smart Balance being an acquisition target to a larger food company, I see the same buying opportunity here. As a pure play organic food company, Annie’s represents a great opportunity for a large food player to buy a company and with its market penetration and selling outlets increase sales while keeping the company as wholly owned subsidiary. Many large names could be thrown out as a acquirer including Kraft Foods, Kelloggs, General Mills, Unilver, or Nestle. Other buyout opportunities would be for Smart Balance or Hain Celestial to make a purchase of a similar company to keep the focus on healthy foods. Investors should not buy shares just on a hunch the company will be acquired but it could be an added benefit down the road a couple of years.
How to Trade
After the Initial Price Offering, Solera Capital will likely still own fifty percent or more of the shares and have a major controlling interest. Sometimes it is difficult to invest in companies which are majority owned where shareholders have little say or voice in what is best with the company. However, Annie’s Incorporated has been growing its sales and base of products handsomely over the past eleven years. The company will likely not grow at the same rate as several recent technology IPOs but consider me a believer in the company and their intentions to go public. I will be waiting on the sideline to see how the company prices its shares and will likely take a chance with this small company after shares hit the open market.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SMBL over the next 72 hours.