Instacart IPO Preview
We are hosting a Black Book on Thursday, September 14 to preview the Instacart IPO.
Instacart (CART) is looking to raise $1.0B in its IPO. Instacart secured support from PepsiCo, a major advertiser, which will invest $175 million in new convertible shares at the IPO price through a private placement. Instacart has also arranged investors willing to purchase up to $400 million of stock at the IPO price. These investors add credibility and validation to the company for other potential investors. This strategy appears critical for CART as its S1 shows some uncertainties.
Larger headwinds for the consumer can be seen in the increasing elasticity of demand for food. Signs of consumer trade down are more apparent, private label growth is accelerating, and lower-priced food retailers are gaining share. As a higher priced service grocery delivery would appear to be challenged. Digital grocery sales have declined YOY in five of the first seven months this year. As inflation has subsided CPG companies are focusing more on sales growth drivers including planned promotions, marketing, and innovation. Instacart is demonstrating its value to the CPG companies, which are flush with larger budgets, with its ability to reach customers during their shopping. In our Black Book we will explore current grocery trends, the outlook for digital grocery, the competitive environment, and the opportunity set.
To add our Instacart Black Book presentation to your calendar CLICK HERE.
Getting sweeter (SJM, TWNK)
J.M. Smucker is acquiring Hostess Brands for $34.25 per share representing a total enterprise value of $5.6B, which includes ~$900M of net debt. Hostess shareholders will receive $30 per share in cash and .03002 shares in J.M. Smucker for every share (equivalent to $4.25 per share). J.M. Smucker will be acquiring Hostess Brands for 17.2x EBITDA before synergies and 13.2x after anticipated run-rate synergies of $100M. Management said they expect the deal to be accretive in the first fiscal year. Smucker has secured the financing and the merger is not contingent on obtaining loans. J.M. Smucker is projected to have leverage of 4.4x at the closing of the acquisition.
The categories make sense for Smucker with the addition of sweet baked goods, a MSD% annual growth rate, and significant customer overlap. Management sees synergies between Smucker’s strengths in the center of the store and Hostess Brands’ strengths in the perimeter of the grocery store and in C-stores. Management’s projection of cost synergies exceeding 6% of sales is a significant call-out. Smucker’s management team viewed the threat from GLP-1 drugs as manageable, because “there are multiple ways that consumers will continue to snack.”
This follows the SOVOS acquisition by Campbell a month earlier. Interest rates are higher, but with much lower price increases going forward not every company was going to have revenue growth. We expect additional M&A over the next year.
Plant-based RTD (PEP, BRBR, STKL)
PepsiCo is introducing a plant-based milk version of Muscle Milk in December. Muscle Milk has traditionally been competing in the performance category while plant-based milk drinks have traditionally been in the lifestyle category. PepsiCo is introducing the new version due to its observations of customers incorporating more plant-based products in other parts of their lives, including fitness. Muscle Milk sales grew 19% to $425M with unit growth of 8.7% in the year ended August 13 according to Circana. There are a limited number of plant-based protein drinks currently available in the market. It is only a matter of time for Bellring Brands to offer an RTD to complement its plant-based powder and SunOpta would be the likely partner.
