By Andy Bamber
On September 9th, Annie’s Homegrown, one of the best-known companies to do a Direct Public Offering (DPO), was acquired by General Mills for $820 million. Just like in the case of the Unilever acquisition of Ben & Jerry’s, which also raised capital with a DPO, the original community shareholders were generously rewarded.
As reported in the Wall Street Journal, General Mills agreed to pay 42 times Annie’s trailing earnings before interest, taxes, depreciation, and amortization (EBITDA). This was the second-highest multiple ever paid for a food company (the first was Ben & Jerry’s, valued at 50 times EBITDA), and triple the average for a food company this year.
On the day before the deal was announced, Annie’s closed at $33.51; on the 9th, the stock closed at $46.10 per share, netting investors a 37 percent premium that day (see chart below). Although the buyout price is off the stock’s all-time peak of $52.38, achieved in October 2013, this represents a 143 percent increase over the company’s initial public offering (IPO) price of $19 in 2012.
While we at Cutting Edge Capital would never suggest that doing a DPO will or even should lead a company to a Wall Street buyout, sometimes these kinds of large exits happen with extremely successful or sought-after companies, as both Annie’s and Ben & Jerry’s now demonstrate. Most entrepreneurs that we work with have no interest in becoming a large publicly traded company, and prefer instead to remain locally focused. CEC supports that approach because it continues to build and strengthen healthy communities. But for some companies, rapid growth may seem the only viable option, and for those companies, this is a good example of what can happen.
But how exactly did a DPO fit with Annie’s overall capital raising strategy?
Annie’s raised capital in several public and private financing rounds in the 15 years that preceded its eventual buyout. According to available figures, including those found in the 2013 Forbes article The Homegrown Success (And Mild Indigestion) Of Annie’s Natural Foods, the dates and amounts for these milestones are as follows:
1995: Advertising on flyers in boxes of its mac-and-cheese, Annie’s completes a DPO for $1.3 million
1999: CEO John Foraker (then owner of Homegrown Natural Foods) invests $2 million in Annie’s, with an agreement to buy out the founders and primary shareholders over time
2002: Solera Capital invests $23 million to become the majority investor in the company
2011: Annie’s files with the SEC to complete an IPO
2012: Annie’s raises $109 million in its IPO
2014: Annie’s is acquired by General Mills for $820 million
After the buyout, Annie’s customers and fans are hotly debating management’s decision to sell the all-organic food company to a pro-GMO global food conglomerate such as General Mills. Many have asked whether Annie’s will be able to maintain its dedication to mission, a question that is certainly worth posing not only by Annie’s customers but also by values-driven businesses and their customers everywhere.
That issue aside, Annie’s trajectory from humble beginnings to the second-largest food acquisition in history demonstrates that a DPO can successfully be used as part of a long-term financing strategy that includes self-financings, private placements (accredited investor or Venture Capital rounds), or an IPO. Or, in the case of many others, a DPO remains a very useful tool to allow a company modest growth while maintaining its mission and control, and further serving its community’s health and well-being.
By Andy Bamber
Over the last century, multinational food corporations and agribusinesses have come to dominate the global food system at an astonishing rate. In a recent report, Oxfam International points out that for a world of 7 billion people, 500 companies control 70 percent of food choice, with the top 10 companies by annual revenue controlling nearly every grocery store brand we know (see infographic below).
Using cheap fossil fuels, these food behemoths race around the globe distributing their barely recognizable “food” everywhere from Costco to chain supermarkets and convenience stores (and yes, even the local, organic groceries of the world). This model works well if giant multinationals can easily shift funds across the globe and avoid paying taxes that help support local government needs, while at the same time reducing their costs and increasing their supply of unhealthy foods—all in the name of maximizing shareholder value. In the process, however, an untold amount of fossil fuels have been used up and converted into atmospheric carbon, natural aquifers have been depleted, human labor has been exploited, and obesity and diabetes are now at epidemic levels.
Raising the specter of a corporate-controlled world in which sustainably produced food is nowhere to be had, a dozen or so other multinationals, Archer Daniels Midland, Cargill, Del Monte, Monsanto, Smithfield Foods, and Tyson Foods being the best known among them, now control everything from the global seed supply to agricultural inputs and entire markets for agricultural commodities supported by sophisticated supply chain distribution models. It is no accident that only 3 percent of food eaten by Americans today is grown within 100-200 miles of where people live.
While these and further disastrous outcomes of the global food system seem inevitable, they are not a foregone conclusion. As demonstrated by initiatives such as AOTM, the agriculture-of-the-middle movement to save and expand the number of small and mid-sized family farms, the popularity of farmers markets and Community Supported Agriculture (CSA’s), and the burgeoning “new economy” movement, a more localized approach has begun to take root, albeit at a scale dwarfed by the global food system. Still in their early infancy, these initiatives are fueled not only by a desire for good and sustainably produced food but also by their goals to end chronic diseases and deteriorating environmental conditions, and by tapping into the growing realization that old economic paradigms are leading to an unprecedented concentration of wealth and power that is destabilizing to society as a whole.
One such approach that sits at the intersection of these trends and promises to deliver more sustainable and equitable outcomes when compared to the global industrial food system is the Food Commons, a California-based 501(c)3 non-profit organization. Now in its fourth year, the Food Commons envisions an interconnected food system consisting of regional food networks that integrate production, aggregation/processing, distribution, and retail functions. Using a “commons” approach—the idea that some forms of wealth (e.g., air, oceans, wildlife, timber, etc.) must be protected and managed for the good of all—the Food Commons seeks to put in place the necessary physical and organizational infrastructure to bring about wholesale change in the way healthy food is produced, bought, sold, and distributed, while ensuring living wages and benefits for all who are involved.
Based on the building block of the foodshed, the Food Commons aims to establish a diversified network of regional food systems designed to meet local needs through a non-profit trust, a community corporation, and a community investment fund. In this unique organizational structure, the Food Commons Trust will acquire and steward foodshed assets, the Food Commons Fund will raise capital for foodshed enterprises, and the Food Commons Community Corporation will build and manage foodshed-based infrastructure, facilitate the logistics of aggregation and processing, and engage in wholesale and retail distribution. Meanwhile, a cooperative federation of regional Food Commons, located throughout out the world, will support the regions through information sharing, training, fundraising, and technical assistance (see below for a graphic).
As explained in Food Commons 2.0, a 2011 concept/strategy paper of the project, the Food Commons will produce the following outcomes:
- Make healthy and sustainably produced food accessible and affordable to all.
- Enable food enterprises within and across foodsheds to efficiently produce and exchange goods and services that meet high common standards.
- Capture benefits of scale in infrastructure, asset management, financing, information systems, marketing, and learning, while preserving local identity, ownership, control, diversification, and accountability.
- Transparently and equitably distribute common benefits along the value chain from farmers, ranchers and fishers, to distributors, processors, retailers, workers, consumers, and communities.
- Harness underutilized foodshed assets, and protect and steward those assets for current and future generations.
- Foster and celebrate regional foodshed identities that generate widespread consumer awareness, participation, and buy-in.
- Create a wealth of new small businesses and jobs, and build a skilled and respected 21st-century food system workforce.
The projected cost of developing each Food Commons region will vary based on local conditions such as the availability of underutilized assets that can be redeployed, the availability of existing entities (e.g., farmers and distributors) ready to participate in the Food Commons value chain, and the scope and scale of the enterprises developed. Starting from scratch, the capital requirements for land, buildings, development fees, equipment, and start-up and working capital could approach $100-$250 million for each Food Commons region. With assets already in place, development costs would be considerably lower. The Food Commons predicts that it could reasonably capture 25% of the $100 billon market for regional food. Assuming a total domestic food economy of $1 trillion, this translates into 2.5% of the overall food economy, making the Food Commons a $25 billion enterprise that is fairly distributed to all connected to it.
There are currently Food Commons systems in various stages of development in Fresno, California; Atlanta, Georgia; and Auckland, New Zealand. The Food Commons will use Direct Public Offerings, or DPO’s, to raise capital from the communities in which it is creating regional food systems. DPO’s allow both wealthy and non-wealthy investors (so-called “accredited” and “unaccredited” investors by the SEC) to invest, advancing the egalitarian vision of the Food Commons model. This eliminates the need for the Food Commons to make difficult choices in order to meet the expectations of a few profit-driven shareholders, further laying the infrastructure for a new food system with a different set of governing and operating principles.
At the Food Commons Convocation in July of 2014, the participants expressed a keen interest in launching the first Food Commons DPO in Fresno. Fresno, a city and county beset by extreme poverty in the heart of the most productive farmland on earth (a problem created largely by the global food system), would be well-served by a large-scale fund raised from both wealthy and non-wealthy investors, dedicated solely to the vision of a healthy, just, and localized food system.
While the current “cheap and fast” global food system threatens our future as it churns away unsustainably on fossil fuel inputs, the Food Commons will usher in a new economic paradigm and a resilient food system by diversifying the number of individuals and businesses participating in food supply chains, providing communities with opportunities to invest in and control their own food security, and increasing consumer choice and access to foods produced in accordance with commonly shared principles of fairness, sustainability, and public accountability.
 Food Commons 2.0, a 2011 concept/strategy paper of the National Food Commons.
 According to Food Commons 2.0, this is defined as follows: “The area of land and sea within a region from which food is produced in order to deliver nutrition to a population base. A local or regional food system includes all the inputs, outputs, and processes involved in feeding the population within a foodshed. Note that the foodshed concept does not obviate the goal or need to export or import food outside of a region.”
 Food Commons 2.0.