Blackstone-backed Oatly’s (Nasdaq: OTLY) $12 billion IPO bodes well for health food companies in the deal pipeline. Coming two years after Beyond Meat’s (Nasdaq: BYND) successful listing, the offering helps cement a trend that could buoy listings and asset sales to come.
Blue Point Capital partner John LeMay told Mergers & Acquisitions about the attractiveness of the health food market last month following his fund’s acquisition of Country Pure Foods. One rationale? Consumer preferences’ march toward plant-based food and beverage. The broader picture? Markets award top valuations to companies with ingredients tailored to vegan, low carbon, and allergen-sensitive products. Oatly is the trifecta.
The list of PE portfolio companies riding on the valuation coattails is long. New Enterprise Associates acquired plant-based shellfish provider New Wave Foods in January for an undisclosed consideration. Plant-based dough manufacturer Urban Farmer was purchased by Paine Schwartz Partners in December.
Companies including high protein food providers Puris and Hippeas have already attracted backing from serious strategics. Cargill invested $75 million in textured vegetable protein maker Puris to bring its total investment to $100 million in 2019.
Private equity could continue to pour capital into niche health foods to chase an outsized exit opportunity. How big of a valuation uplift does the tailored health food halo convey? Oatly’s market cap as of publication values the grain-based milk substitute maker at 30.8x 2020 earnings, compared to an average 25.6x for public dairy sector comparables as of 3Q20, according to S&P Capital IQ data. To even trade in line with peers is evidence of the halo effect as the company has yet to turn a profit. Since 3Q, Oatly’s peer group has shrunk thanks in part to customer preferences’ move away from dairy. Dean Foods, a conventional dairy producer mentioned in Oatly’s prospectus as a competitor, declared bankruptcy in 2019 shortly after a strategic review pivoted away from a sale.
The traditional route for health food upstarts is for an early-stage acquisition by a strategic. Think Mondelez International’s 2019 acquisition of a majority stake in nutritious protein bar maker Perfect Snack’s owner Perfect Brands. Surging valuations could well hold that door wide open for small health food platforms. But public listings could also be an option down the line for larger financial sponsors planning substantial bolt-ons for platforms they buy from middle market PE.
Should portfolio companies see value uplift on the same scale, appetite for health food platforms will get frothy in the months to come.