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.