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What the Strong Reception of the Vital Farms IPO Means for the Rest of the Organic Industry

(Photo courtesy of NASDAQ)

If there is one thing that we have learned from the Vital Farms IPO, it’s that public investors have a serious appetite for organic and responsibly-grown foods.

Vital Farms, a Texas-based producer of pasture-raised and organic eggs, filed to raise approximately $125M, with an IPO range between $15 and $17 per share. With demand so strong, the Wall Street investment banks underwriting the deal, including Goldman Sachs and Morgan Stanley, decided to push that range up and eventually priced the deal at $22 per share, which netted the company $205M in proceeds.

At the end of the first day of trading, shares closed at $35.26, a gain of 60%, giving the company a valuation of $1.38 billion. It closed today at $36.45, which implies a $1.42 billion market capitalization.

Let’s put this $1.4B market cap in perspective, comparing the company’s 2019 price-to-earnings multiple to that of the S&P 500, one of the most commonly followed equity indices and one of the best representations of the U.S. stock market.

In 2019, Vital Farms had revenues of $141M with net income of $3.3M. That means the company is trading at 431x 2019 net income. In contrast, the S&P 500 is trading at 20.7x 2019 earnings. Vital Farms is trading at a significant premium to the S&P 500, and industry experts believe that scarcity is one reason for this.

“Fundamentally, Vital Farms is driven by growth. The company has been experiencing 30-40% growth over the past few years, and it has real scale. Plus, there are not a lot of public investments that fit this profile of better-for-you, organic ingredients,” said Jonathan Hodson-Walker, Managing Partner at Silverwood Partners, an investment bank focused on the consumer, healthcare and technology sectors.

Nick McCoy, Co-Founder and Managing Director of Whipstitch Capital, an advisory firm focused on the healthy living consumer market, concurs.

“There are not many sustainable supply chain companies that are publicly traded. Plus, numerous institutions are double bottom line, and this IPO got a very strong reaction from these funds.”

One question that remains is what kind of impact this successful IPO will have on other organic food brands looking to go public.

“It all depends on growth and if a brand resonates with consumers,” explained Jonathan Hodson-Walker. “If a company is doing $10M in revenues and will grow to $12M, it will not go public. If you have a $50M revenue business that is growing to $80M, which would be small for an IPO, this could be a candidate.”

Aside from the route of doing an initial public offering, investment bankers say that CPG brands being acquired via a special purpose acquisition company (SPAC) is something that is becoming a growing trend. SPACs are ‘blank-check’ companies and have a mandate of buying other businesses.

Several CPG brands have been purchased or created lately by SPACs, such as Utz, Tattooed Chef and Whole Earth Brands.

“There are more SPACs looking at organic and CPG businesses that have scale, especially with an increasing number of people cooking at home right now,” added Jonathan Hodson-Walker.

Whether it is via an IPO or a merger with a SPAC, more attention from public investors is focused on organic, as COVID has helped people appreciate how high-quality, organic foods are playing a critical role in contributing to good health and immune function.

“Overall, the Vital Farms IPO is a very bullish sign,” said Nick McCoy.

Despite ominous pockets in the economy, well-run organic companies have a bright future.

With gratitude,

Max Goldberg, Founder

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This Week's News Items

Weekly News Summaries

First Course
The Guardian

Study: An Organic Diet Can Reduce Pesticides by 70%

By Kendra Klein and Anna Lappé

A new peer-reviewed study showed that switching to an organic diet decreased levels of glyphosate by 70% in just six days.

The Hill

Democrats introduce Bill to Ban Chlorpyrifos and Other Pesticides to Protect Farmworkers

By Rebecca Beitsch

A bill led by Sen. Tom Udall (D-NM) and Rep. Joe Neguse (D-CO) would ban chlorpyrifos, neonicotinoids and paraquat.

New Hope Network

Amazon's Online Grocery Sales Triple in the Second Quarter

By Michael Browne

While online sales were booming, physical store sales experienced a revenue drop of 13% to $3.8 billion during Q2.

AgNet West

USDA publishes Proposed Rule to Fight Fraud in Organic

By Brian German

Last week, we discussed the USDA's preview of a proposed rule to fight organic fraudulent organic imported grains. Now that proposed rule has been officially published in the Federal Registrar.

Second Course

Once Upon a Farm and TOMS collaborate on Apple-Themed Collection

The two mission-driven companies have collaborated on a limited-edition collection with styles that feature 100% organic cotton uppers and lining, as well as Green EVA outsoles derived from sugarcane.

National Organic Coalition

Groups Outraged over USDA's Cuts to Organic Certification Cost Share Reimbursements

The National Organic Coalition and Organic Farmers Association are outraged over the reimbursement cuts -- at a time when these funds are needed more than ever.

The National Law Review

USDA may Add “Sugarcane (Insect Resistant)” to the List of Bioengineered Foods Disclosure List

This move was done in response to Brazil's approval of genetically-engineered sugarcane using recombinant DNA technology.

Third Course

Food Is Growing More Plentiful, So Why Do People Keep Warning Of Shortages?

By Dan Charles

More evidence that "GMOs are needed to feed the world" is pure propaganda.


Flying Embers closes on an Additional $10M

The new funding was led by investment vehicles of the Santo Domingo Group.

National Geographic

The Pandemic Could Actually Strengthen the U.S. Food System

By Saul Elbein

The shock to U.S. food chains from the coronavirus has been a boon to small- and mid-sized farms and distributors. Could it be the start of a new way to get food?

Supermarket News

Walmart, Sam’s Club set Goal to Source Beef More Sustainably by 2025

By Michael Browne

A step in the right direction, as the retailer commits to prioritize soil health and animal welfare.

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This Week's Quick Hits

Quick Hits

* A few weeks ago, we wrote about how Regenerative Organic Certified was set to launch. It is now officially open for business!

* Congrats to Patagonia’s Kourtney Morgan and Straus Family Creamery’s Albert Straus for being named to Fast Company’s Most Creative People in Business for 2020.

* Originally scheduled to take place in Iowa, the National Organic Standards Board meeting this fall will now be virtual.

* Nutiva has made new hires to its senior management team, adding Steve Shaffer as vice president of sales and Anne Thompson as vice president of marketing.

* Natural Grocers, the nation’s largest family-operated natural and organic grocery retailer, is celebrating its 65th anniversary.

* Grow Ahead, a digital platform that supports farmer-led climate resiliency projects around the world, is partnering with Food 4 Farmers to help women and indigenous farmers improve food security and biodiversity in Nicaragua, Colombia and Guatemala.

* On Thursday, August 13th at 7pm EST, Suja Organic is co-hosting Rebuilding the Basics of (We)llness.

* Lundberg Family Farms is celebrating its 4th anniversary for Platinum TRUE Zero Waste certification, as the company reuses or recycles 99.6% of everything on its property.

* The New Yorker called Daily Harvest “a trendy Jolly Green Giant for the direct-to-consumer era.”

* Ace Natural, an organic food wholesaler in New York, has built a microgrid to boost resilience and cut its utility bills.

* Construction has begun on Southwest College of Naturopathic Medicine’s Ric Scalzo (founder of Gaia Herbs) Institute for Botanical Research.

* Whole Foods Market has launched “Home Ec 365” with modernized lessons in #adulting.

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