Enthusiasm

Once-hot food and drink IPOs lose their enthusiasm as investor enthusiasm wanes

As The Vita Coco Company went public last month, the maker of coconut water and other healthier drinks said the right words to spark investor interest. It’s still profitable, said the executives of the growing company positioned in a trendy category.

“As we continue to perform and outperform, I think over time investors will see that this is a stock that truly represents the future of consumers when it comes to beverages,” said Mike Kirban, co-CEO of Vita Coco, on the day his company went public. “I’ve been building it for 17 years; I can’t wait to build it for a long time to come. I don’t care what a specific day looks like.”

But instead of climbing in the days after its debut, the company suffered the same drop in its stock price that put pressure on more than a dozen other companies that went public through ” a conventional IPO or merger with a specialized acquisition company. , or SPAC. Vita Coco, which valued its IPO at $ 15 each, below the previously expected range of $ 18 to $ 21, fell 10% after its IPO just two weeks ago.

A review of 13 companies that have gone public since July 31, 2020, through a traditional IPO or merger with a SPAC, shows that all but one of the quotes are trading below their point. entry into the market.

In the case of IPOs, seven of the eight companies are below the initial price of their shares. This includes Swedish oat milk titan Oatly and pasture-raised egg producer Vital Farms, both of which are down about 25% in stocks.

Each of the five PSPC agreements declined. Indoor greenhouse operator AppHarvest has plunged 76% since the day it closed its SPAC merger. Biltong maker Stryve, which recently announced the departure of its co-CEO, and crop genomics platform developer Benson Hill lost around 40% of their value.

New state-owned food and beverage companies saw their stock prices wane

Stock values ​​on the first trading day compared to the close of trading on October 29.

“The fact that they [have] Falling below their IPO price doesn’t mean they’re bad companies. It just means that they were overpriced businesses, “ said Erik Gordon, professor of commerce at the University of Michigan, speaking of the food and drink lists as a whole. “And the fact that they are overpriced companies is not related to the fact that they are food companies, it is related to when they went public. They went public in a sparkling market. “

There are a multitude of reasons these companies and others have drifted down. Some investors may want to take advantage of the post-IPO pop to cash in and pocket their winnings. Others may fear that the market, which is trading at an all time high, may be corrected, causing them to withdraw their money and reinvest it in other areas like bitcoin, gold or real estate. Other traders may fear that the growth projections for these companies are too optimistic and do not support such an expensive valuation.

Only one company appears to have weathered the fall only to see its stock price rise after its stock market debut. Noosa’s yogurt maker Sovos Brands has climbed 35% since going public at $ 12 a share. It is also priced below its expected range of $ 14 to $ 16. Sovos, which acquires disruptive brands specializing in premium offerings, made a profit in its last financial year. It is the fastest growing food company in the United States

The US IPO market was active in 2021, and food and drink was no exception. Traditional U.S.-listed IPOs, excluding PSPCs, were valued through Oct. 27 at $ 261 billion, according to data provided by Dealogic dating back to 1995. The total easily exceeds other years. complete tabulated by the company. In food and drink, the deals were valued at more than $ 3 billion, the second highest on record during the same period.

Brian Choi, CEO of The Food Institute, a food industry market research and media company, said food and beverage IPOs, especially in vertical agriculture and alternative milk , were assessed with “high growth expectations”. He said these IPOs or SAVS and others are more valued by investors than they have been in the past.

“Investors, whether in these high-flying names, whether in IPOs or PSPCs, are starting to question the viability of the growth expectations and valuations of the underlying companies,” Choi said. . “That’s why we’ve seen less than stellar performances since the start of the year in these names.”

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The dismal results, however, are unlikely to deter other companies considering going public in the space from postponing their own IPOs, according to industry watchers.

Boiling stock markets and investors eager to find ways to use their liquidity to work in a low interest rate environment continue to view these offers as an attractive channel. Even with high stock market valuations, there are few alternatives that investors can turn to for a meaningful return.

Companies that go public want to strike while the markets are attractive rather than wait until terms are less attractive, thus reducing the amount of money they raise in an IPO or trading. a PSPC operation.

The food space has arguably been bracing for the IPO of the two biggest companies since Beyond Meat listed its shares in May 2019. The California-based company, the first plant-based food maker to go public on a major stock exchange, has enjoyed tremendous success despite a recent decline in its shares, with its stock having jumped 300% since its IPO.

Another plant-based meat company Impossible Foods is reportedly gearing up to go public next year. Last week, Bloomberg said Impossible was in talks to raise around $ 500 million in funding that would value the company at around $ 7 billion. Greek yogurt pioneer Chobani has filed a confidential registration statement with the Securities and Exchange Commission for a possible IPO in July. The Wall Street Journal said at the time that it was considering potential valuations of $ 7 billion to $ 10 billion.

Choi, a former Wall Street investment banker and private equity investor, noted that “huge investor interest” remains in alternative milks and meats, which may prompt companies to use this. as a springboard to go public.

“I don’t blame these companies for wanting to go public. If I can start a SAVS right now and get rated at some of the multiples we’ve seen, why wouldn’t I? I would just take advantage of the current stock market conditions, ”Choi said. “As market conditions ‘normalize’ trading activity and IPO and PSPC valuations are likely to decline, but it is difficult to predict when.”

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