Welcome to Our Inaugural Issue of The Intrepid Foodie
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Fall Report 2020
Welcome to Our Inaugural Issue of
The Intrepid Foodie
intrepidib.com | Mergers & Acquisitions | Capital Markets | Strategic Advisory | A subsidiary of MUFG Union Bank
11755 Wilshire Blvd., 22nd Floor, Los Angeles, CA 90025 T 310.478.9000 Member FINRA/SIPC
Welcome to Our Inaugural Issue of The Intrepid Foodie
Welcome to the first edition of Intrepid’s Food, Beverage & Agriculture (FBA) quarterly industry report. When I joined Intrepid in
the fall of 2019 to head up the FBA practice, I could have never guessed what a rollercoaster of a year it would be. Despite COVID,
I am very pleased with the progress we have made, which includes staffing up a dedicated four-person team, signing multiple
engagements, penning articles, and partnering with our MUFG and Union Bank colleagues to bring the full capabilities of a
global financial organization to our clients.
This summer provided us an opportunity to catch our breath and get ready to launch our inaugural industry report. There are
plenty of services that aggregate articles and newsletters chock full of industry trading statistics and deal lists (we have that too
– see our link to request our data book at the end of the report); however, we are striving to provide you with thoughtful content
that reflects in-depth perspectives on the trends impacting our industry. These are our perspectives and insights and we hope
they stimulate ideas and maybe even prompt some debates.
As the summer wore on, the opportunity to catch our breath quickly vanished as market activity ramped back up. The combination
of pent up demand from the initial slowdown and the threat of changing tax laws have led to such a strong rebound in deal flow
that some deal makers are saying they are as busy as they have been in recent memory. Heading into the close of 2020 and
beyond, the M&A markets remain highly active across multiple industries and the FBA sector in particular is seeing renewed
interest. We expect the market to remain fluid but highly active for the foreseeable future and we are always here to help you
navigate through it.
Mike Seccuro | Managing Director
Inside the Fall Issue
Deal of the Quarter
Vital Farms reopened the IPO market for food and beverage with an eye-popping valuation and performance. Is this a
longer-term trend? What should companies consider in evaluating whether to go public?
Commodity Corner
Turkey, the other, other white meat, is chicken’s less popular cousin. With Thanksgiving around the corner and production
restraints, this category is turning the corner and poised for possible recovery in 2021. What are the prospects for turkey to
break out of its historical range of consumption?
Observations from the Aisle
The debate over dairy continues and plant-based alternatives push beyond milk into other product forms.
Beyond hard seltzers. What’s next? More sophisticated palates and consumers are looking for something more than White Claw.
What We Are Reading and Watching
American Pickle: film review
The Algebra of Happiness: book review
intrepidib.com | Mergers & Acquisitions | Capital Markets | Strategic Advisory | A subsidiary of MUFG Union Bank
11755 Wilshire Blvd., 22nd Floor, Los Angeles, CA 90025 T 310.478.9000 Member FINRA/SIPC
“Food feeds our souls. It is the single great
unifier across all cultures. The table offers
a sanctuary and a place to come together
for unity and understanding.”
– Lidia Bastianich,
Critically-Acclaimed Chef, Restaurateur,
TV Personality and Eataly USA Partner
intrepidib.com ● 2
Deal of the Quarter – Fall 2020
Highlighting the Public Market’s Desire for Stories it Can Understand in a Defensive Sector…All While Playing the “Socially
Conscious” Angle Against a COVID-19 Backdrop
On August 4, 2020, Vital Farms closed an IPO selling 10.7 million shares(1) at an initial price of $22 per share, up from a filing
range of $15 to $17 per share. Vital Farms is a Certified B Corporation and is the leading U.S. brand of pasture-raised eggs and
butter by retail dollar sales with current distribution in approximately 13,000 stores nationwide. The company had net sales of
$182.4 million during the LTM June 2020 period and a net sales CAGR of 36.5% (2015 - LTM June 2020).
Of the 10.7 million shares sold, 5 million were primary shares ($110.9 million of gross proceeds) for general corporate purposes
including ~$15.0 million of net proceeds to fund the expansion of its Egg Central Station processing operation in Springfield, Mo.
Importantly, the offering was also comprised of 5.7
15.0x
million secondary shares (53% of offering) providing
11.7x
$124.5 million of liquidity to selling shareholders 12.0x
11.1x
including 1.4 million of shares (or $30.7 million of
9.0x
gross proceeds) attributable to the underwriters’ 5.7x
4.9x 4.9x
option to purchase additional shares from existing 6.0x 4.0x 3.5x 3.1x 2.6x 2.5x
shareholders. The financing saw significant success 3.0x 1.2x
reaching a share price of $34.56 as of 10/30/2020
0.0x
for a market capitalization of ~$1.4 billion. With Vital
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Figure A: EV / 2021P Revenue
Intrepid Observations
As the first food and beverage IPO since Beyond Meat in August 2019 and Bell Ring Brands in October 2019, Vital Farms shows
the continued viability of emerging growth brands as public company stories and an alternative exit vehicle to a sale of the
company to strategic buyers or private equity. Of particular note is the market’s receptivity to a brand play in what is generally
considered a commodity sector– eggs. While Vital Farms focuses on pasture-raised eggs instead of those from hens raised
in caged or cage-free environments, it lacks the proprietary, science-based nature of Beyond Meat or the unique value-added
product attributes of Bell Ring or Freshpet.
Vital Farm’s consistent growth and 30%-plus gross margins helped to establish the brand’s value and separate the business
from other agricultural commodity players (e.g., top egg producer Cal-Maine Foods – NASDAQ: CALM).
Sources: Company filings and S&P Capital IQ.
Note: (1) Includes 1.4 million shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares of common stock from existing shareholders. intrepidib.com ● 3
Deal of the Quarter – Fall 2020 (cont’d)
However, we believe the market is underestimating several potential challenges:
Difficulty scaling pasture-raised egg production supply chain.
According to our discussions with industry sources, there are very
few producers/aggregators of supply in scale and typical farmer
flock sizes are 20,000 hens on 50 acres and geography limited to
the “pasture belt” (see figure B). In addition, farmers need to spend
approximately $1 million for infrastructure and hens in a typical
flock (not including the 50 acres of land).
Competition from private label. With the pasture-raised standard
relatively defined (108 sq. ft. per hen), private label can provide a
similar value proposition to the Vital Farms branded product. Supply Figure B: Vital Farms Production Map
availability and market size relative to conventional or even cage-free,
have been limiting factors to more greater retailer focus on private label in the pasture-raised category. We believe this market
will develop similarly to categories like organic milk, where a vibrant private label market exists.
Reliance on new products to drive growth. Vital Farms discusses in its prospectus and roadshow entering refrigerated value-
added dairy products to drive continued growth. Currently, it points to the recent launch of egg bites as an example of this
innovation strategy. However, new product launches are not without risk. Even in egg bites, Vital Farms enters a market with
competitors such as Organic Valley and Three Bridges which has significant business with Costco and is expanding in grocery.
To IPO or Not to IPO?
With the Vital Farms valuation, many emerging food brands that have not considered an IPO in the past will likely view this route
as a viable path to liquidity. Companies considering an IPO should carefully evaluate whether they have the characteristics to
execute it successfully and the implications of such a strategy.
Key company characteristics investors look for:
Demonstrated top line growth
Large and growing total addressable market (TAM)
Business models with visibility and predictability
Companies reaching inflection points in business model and margins at/or right before IPO occurs
Validation provided by marquee investors
Infrastructure (e.g., management team, financial controls) necessary to be a public company
A successful launch is critical in an IPO but is just the beginning for a company entering the spotlight.
Sources: Company filings and S&P Capital IQ.
intrepidib.com ● 4
Deal of the Quarter – Fall 2020 (cont’d)
Additional Considerations include:
Path to monetization will not end with IPO and will likely require multiple follow-on equity offerings, which are based on
continued superior execution, supportive market conditions and offering size
Limitations based on average daily trading volume and company market capitalization
Life in a fishbowl along with a greater focus on short-term quarter-to-quarter performance–missing a quarter can be
tough to recover from
Increased vulnerability to activists, litigation and unsolicited take-overs
IPOs, however, can be a good fit in certain circumstances, especially where the valuation advantage may be significant.
Such situations include:
Various shareholders with different desires and expectations for liquidity
Need for a public equity currency for future capital needs, acquisitions and employee recruiting/retention
Potentially significant branding and legacy opportunity
Double-dip opportunity to establish a valuation and see subsequent acquisition at a premium (this has been quite
common with multiple recent examples–Annie’s, Blue Buffalo, Amplify Snack Brands)
Commodity Corner
Industry is Turning the Corner and Poised for
Recovery Heading into 2021
As the only major livestock product native to North
America, turkey is uniquely American (U.S. is the
largest global producer) and was even suggested by
Ben Franklin to be the national bird. Indeed, the annual
turkey pardon at the White House has been an industry
tradition around Thanksgiving since 1947 beginning
with President Harry S. Truman.
The turkey industry for years has been on a quest to
increase consumption and usage occasions beyond
the traditional seasonal whole bird market which is
now just under 30% of turkey consumption, according to the U.S. Poultry & Egg Association. Beyond the whole bird market,
intrepidib.com ● 5
Commodity Corner (cont’d)
the most popular product forms include deli meat, ground turkey and 125
100
turkey patties as well as turkey bacon and sausage. However, with all 75
50
the innovation over the last few decades, per capita consumption lags 25
well below chicken at 16 pounds versus 96.5 pounds. Consumption 0
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
levels have been relatively constant versus the growth seen in chicken
and declines seen in beef (see figure C). Much of this gap has to do with Beef Pork Chicken Turkey
turkey’s more limited foodservice penetration (i.e., the ubiquitous chicken
Figure C: Per Capita Consumption (in pounds)
nuggets, sandwiches and buckets).
The birds most often consumed as whole birds are hens which average from 8 to 16 pounds, are produced throughout the year
and frozen for the holiday season. If you are having fresh turkey for holiday dinner that bird was grown starting 10 weeks or so
prior to being processed and sent to store shelves. Toms or male turkeys range from 16 pounds to 20 pounds and are often
processed into turkey sausage, turkey franks, tenderloins, cutlets and deli
meats.
Typically, turkey prices reach their peak leading up to the Thanksgiving
holiday season. With hatchery and production indicating supplies will be
tighter during the holiday season, prices are likely to keep pushing higher
for whole birds. Holiday demand for whole birds may be tricky to pinpoint
ahead of the season with many consumers re-thinking those gatherings.
Figure D: Turkey Prices (cents per pound)
Available turkey supplies are already showing indications that they will
easily be lower than last year based on: (i) the declining number of eggs
in incubators over the last several months; and (ii) lower poults hatched
and placed in August. If consumer demand for turkey during the holiday
season remains similar to prior years, there is potential for prices to rise.
Turkey prices throughout 2020 are well ahead of historical averages and
mostly above levels seen in 2019 based on reduced supply and poult
placements (see figure D and figure E).
Figure E: Turkey Production (mil. pounds)
While the whole bird market is moving in the right direction, 2020 wasn't
without its struggles for the turkey industry especially as it relates to foodservice and deli meat demand which has pushed both
tom breast and thigh meat prices down through the summer. However, August showed meaningful declines in cold storage
inventories across breast and thigh meat, which bodes well for 2021 when coupled with supply/production restraints. Longer-
term, turkey is on trend with consumers’ desire for lean healthy proteins and a continued focus on integration of turkey at
breakfast or in snacks (jerky, sticks) and possibly with some value-added innovation as an alternative to the chicken breast as
a year round center-of-plate item could help turkey break out of its historical limited growth profile.
Sources: USDA, the Wall Street Journal and Urner Berry.
intrepidib.com ● 6
Observations from the Aisle
The Dairy vs. Anti-Dairy Movement - Animal Free Innovation Continues to Flood the Market
The anti-dairy movement continues to gain traction despite the surge in dairy milk sales during
the COVID-19 pandemic. The dairy industry brought back the "got milk" marketing program
and has seen innovation (e.g. high protein) from brands such as Fairlife and a2 Milk. While the
dairy industry claims that the dairy-free movement isn’t a threat to their market share, dairy
consumption has declined in recent years and plant-based alternatives continue to grow. Non-
dairy products have successfully penetrated a variety of dairy categories outside of milk including
cheese, yogurt, pudding, ice cream, creamers and butter.
Knowing that consumers desire healthy, environmentally conscious, animal free options but
don’t necessarily want to give up on taste or texture, brands have focused on innovative dairy free
products that have the look and feel of dairy without actually containing it.
Brave Robot, an animal-free ice cream brand, incorporates manufactured whey and casein into
its products via fermentation – simulating the same texture and quality of dairy without the cow.
Noops, an organic oat milk pudding brand, is bringing plant-based ingredients to a largely
stagnant dessert category while maintaining the flavor and texture that so many consumers love.
Hard Seltzers Have Taken the Market by Storm, but Competition Quickly Followed
It is a trend none of us could have missed. The hard seltzer category has absolutely exploded in
growth over the past several years having grown from approximately $40 million in U.S. market
size in 2016 to over $1 billion in 2019 and it is expected to reach $2.5 billion by 2021, according to
T4 Labs. Growth in the hard seltzer market has been fueled by the U.S. consumers’ increasing
focus on flavor and demand for lower calorie, healthier options – two key elements of most hard
seltzer options. Hard seltzers have especially taken market share from beer as they are often a
gluten and grain-free option with similar alcohol content.
As hard seltzers led by market leader White Claw have seen tremendous success and growth,
several other alternative alcoholic beverages have entered the market targeting a similar
consumer. We have started to see several newer brands on shelf including Babe Rose (canned
wine), Booch Kraft (hard kombucha), Cutwater Spirits (canned premixed cocktails), Jiant (hard
kombucha), Owl’s Brew (boozy tea), and Underwood (multiple varieties of canned wine) among
others. Products like hard kombucha, canned wine, premixed cocktails and boozy teas are
becoming increasingly prevalent on shelf and once again combine a healthier brand positioning
and the convenience of being sold in canned or bottled form. While all of these products potentially
pose a threat to hard seltzer, there remains meaningful room for growth for the overall healthier
alternative beverages market to grow in the $250+ billion U.S. alcohol market, according to bw166.
intrepidib.com ● 7
What We Are Reading and Watching
An American Pickle – Review by Ana Alvarenga (Analyst)
The next time you are in a pickle and in need of a welcomed distraction, here is a movie for you: An
American Pickle directed by Brandon Trost and starring Seth Rogen.
The feature film tells the unusual story of Herschel Greenbaum, a poor Jewish ditchdigger from Eastern
Europe, who after a raid in his village decides to immigrate to the U.S. in search of the American dream.
He arrives in Brooklyn in 1919 and gets a job at a pickle factory.
In a work accident, Herschel falls into a pickling vat and is left for dead in the brine. After a century, he
is found perfectly healthy and without having aged a day. He is connected to his only living relative, his
great grandson Ben Greenbaum, also played by Seth Rogen. The family reunion starts well, however, the
generational and cultural divide leads the main characters to a heated feud.
During the course of the action, the two men engage on some hilarious comic bits, poking fun both
at Herschel (the fish-out-of-water) and Ben (the hipster Brooklynite). An American Pickle overall is an
entertaining and engaging feature. While a satire of Millennials and Gen Z and their constant search
for the next “insta-worthy” food trend, the film also illustrates the venture capital world and direct-to-
consumer businesses – two aspects of the food and beverage industry that have become so common in
recent years.
“The Algebra of Happiness” - Review by Mike Seccuro (Managing Director)
As I prepared this summer to take my first child to her first year of college at my alma mater, University
of Virginia, I reflected on my own experiences and the decisions that took me to Wall Street. The business
world and Wall Street are very different today than they were in the early 90’s when I attendedthe
University of Virginia and in the go-go 80’s when I was first thinking about a career in finance.
A few months ago, I was introduced to a YouTube video by NYU professor (and, like me, a former
investment banker at Morgan Stanley) Scott Galloway called the The Algebra of Happiness. He is better
known for his book The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, a viral email to
one of his tardy students and some of his more outspoken predications and twitter presence.
Turns out The Algebra of Happiness was expanded into a book, which I read and found really moving at
this time in my life having lost a parent, being more on the back nine versus the front nine of life and being
in the midst of the pandemic. I gave the book to my daughter after graduation this summer and hope she
takes it to heart in how she approaches her life.
I wish I would have read something similar or had similar epiphanies at her age around issues like work-
life balance, personal finances, marriage/relationships, kids, death/dying, and growing old. It’s a quick
read with an entertaining style as you can see from the YouTube video.
intrepidib.com ● 8
Deal Announcements
Advisor to the leader in better-for-you contract beverage manufacturing
Operates in fast-growing categories: kombucha, alkaline water, sports drinks
and functional beverages
has received a growth
investment from
Trusted partner to many of the largest and best-known beverage brands and
big-box retailers
Advisor to Unix-WGP Packaging
Intrepid Investment Bankers featured in LABJ’s Food &
Beverage Roundtable
“The food and beverage industry as a whole should continue to outperform most
sectors as food remains an essential need for all consumers.”
- Mike Seccuro, Managing Director
Link to full article.
Food, Beverage & Agriculture Databook
Intrepid’s Food, Beverage & Agriculture Databook includes robust industry
statistics, commentary on macroeconomic trends and the latest on the most
notable acquisitions and investments in the industry.
Please sign up to receive the Intrepid databook when it becomes available,
click here
Intrepid’s Food, Beverage & Agriculture Databook
intrepidib.com ● 9Food, Beverage & Agriculture Team
Mike Seccuro Brian Levin Patrick Khang Ana Alvarenga
Managing Director Director Associate Analyst
mseccuro@intrepidib.com blevin@intrepidib.com pkhang@intrepidib.com
How Intrepid Can Help
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& Acquisitions Capital
Capital
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Leading Advisory Services ● Bespoke private capital ● Senior team advised on
situations are our specialty over 350 transactions
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Full Coverage Across the ● Agricultural Inputs ● Branded Food & Beverage ● Distribution
Value Chain
● Grains & Commodities ● Private Label ● Grocery
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Extensive Relationships
the food, beverage & agriculture industry
& Reach
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About Intrepid’s Food, Beverage & Agriculture Practice
Intrepid’s Food, Beverage & Agriculture team delivers results in mergers, acquisitions and capital raising transactions through
utilizing a bespoke approach that is not only informed by each client’s needs, but by our background and long-standing relationships.
Our team’s experience ranges from emerging disruptors to marquee strategic transactions – ensuring a deep understanding of
the most important drivers in the sector.
intrepidib.com | Mergers & Acquisitions | Capital Markets | Strategic Advisory | A subsidiary of MUFG Union Bank
11755 Wilshire Blvd., 22nd Floor, Los Angeles, CA 90025 T 310.478.9000 Member FINRA/SIPCYou can also read
