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BFD Expert Voices - Retail Deals

BFD Expert Voices

The IPO window is narrowing amid middling performance by the fall class of listings and uncertainty surrounding the upcoming U.S. presidential election, Kimberly writes.

Why it matters: The timing may be more crucial for IPO hopefuls, as companies have been pursuing smaller public floats, with the hopes of fetching larger returns with a follow-on offering later.

Driving the news: The companies that rang the bell in recent months — including Klaviyo, Arm Holdings, Instacart and Birkenstock Holding — have fallen below their IPO share prices.

What they're saying: "The question that we're discussing is how early in '24 can we get to try to get a window around potential first-time follow-ons ahead of elections," Mark Schwartz, EY's IPO and SPAC advisory leader, tells Axios.

Companies eyeing spring and early summer of 2024 are also thinking about their lockup periods —  which tend to be six months after an IPO — putting them right around the election season, he says.

Meanwhile, much of what's prying the current IPO window open is investor pressure, says Don Short, the head of venture equity at InvestX Capital.

"We've seen that in a number of cases that need-to-go-public decision is kind of being heavily influenced more by the company's backers and investors than necessarily the company's plans themselves," he says.

In today's market, IPOs are more of a liquidity event than a bid for growth capital, he adds.

"It's just those companies that don't really need to go public…because they're profitable, they don't have to go public to continue the business plan," he says.

The big picture: The number of IPOs to hit the market in the last quarter was 116, relatively flat from the comparable period last year, according to an EY 3Q IPO report.

Between the lines: Generally, IPOs are designed to perform with the IPO discount in mind, Schwartz says.

"The theory is that, if everything works right, IPOs are supposed to trade up and to the right."

But there's another dynamic playing out with the smaller public market floats, Schwartz says.

"They're smaller as a percentage of the company in this recent crop. In addition, very significant portions of the shares being sold in the deals are being given to cornerstone investors," Schwartz says.

"It's already a smaller supply of stock, but it is taking away from the available allocations to investors," he says.

"As soon as the momentum subsides, there's a question as to whether or not some of these investors are going to fight the momentum and continue to try to buy and get to sizes that matter to them, or they're gonna bet," Schwartz says.

The bottom line: Strong financials tell a winning story.

"If you're profitable in this market, you have choices," Short says.

1 big thing: IPO window shrinking

Illustration of Benjamin Franklin exiting the frame of the one hundred dollar bill.

 Zero Acre Farms, which aims to replace seed-based cooking oils with an alternative fermented from sugar cane, is eyeing a Series B in the second half of 2024, CEO Jeff Nobbs tells Richard exclusively.

Why it's the BFD: Seed-based cooking oils have a high carbon footprint —  both palm oil and soybean oil production are leading contributors to deforestation.

Driving the news: Zero Acre Farms has partnered with Texas-based burger chain Hopdaddy Burger Bar, which has pledged to go seed-oil free.

Beginning in September, the company's product was being tested in two Shake Shack locations as part of that chain's efforts to become more sustainable.

Details: Nobbs declined to disclose the amount being raised. The company has raised nearly $42 million to date, including at a $127 million post-money valuation in 2022.

Proceeds would fund a "2.0" version of Zero Acre's oil, he notes. 

How it works: The cooking oil is made by fermenting sugar from sugar cane,  considered one of the more efficiently grown crops, Nobbs says.

It has a better fat profile, is liquid at room temperature, lasts longer when used in deep frying, and has a better taste than many of the widely used seed-based oils, according to Nobbs.

Currently, the company conducts all its research and small-scale fermentation in the Bay Area.

It has a partner that processes the oil, which is shipped to the Midwest where it is bottled.

The big picture: Zero Acre Farms has a multi-year plan, with the goal of servicing large fast-food chains like McDonald's, Nobbs says.

Fast-casual chain Chipotle made an investment in Zero Acre Farms back in March.

Zoom in: Although most oil is consumed in restaurants, Zero Acre Farms does sell 16-ounce bottles of its product online and wants to sell it in supermarkets, he says.

2. The BFD: Zero Acre Farms prepping Series B

Raw potatoes and a cylinder of Zero Acre Farms cooking oil are displayed on a table.

✨ Denver-based VF Corp. is being targeted by yet another activist, Legion Partners Asset Management, to divest some of its brands such as Timberland, Bloomberg reports, citing sources.

Note that VF has been conducting a strategic review since February of its backpack business, which includes brands such as Kipling, Eastpak and Jansport.

On Monday, the company named former Nike president Trevor Edwards to its board.

That follows a push last week by hedge fund Engaged Capital for the apparel conglomerate to dramatically reduce corporate spending and invest more in its footwear brands.

Engaged's director of research, Chris Hetrick, at the time, said that changes to the board were also necessary.

3. Retail therapy

Want more retail deals? Search the Axios Pro Deals Tracker beta.

• Node, an e-commerce data management startup for consumers, raised $2.75m in seed funding led by Neotribe Ventures. https://axios.link/3QvzS0D

• Gozen, an SF-based developer of lab-grown leather, raised $3.3m in seed funding. Happiness Capital led, and was joined by Accelr8, Astor Management and SOSV. https://axios.link/4088qJe

4. Retail transactions

• John Garratt, former president and CFO of Dollar General, and Stephen Gibbs, former chief accounting officer at the Home Depot, joined the board of directors at Papa Johns. https://axios.link/3ScStiX

• Justin Keppy joined Hertz as EVP and chief operating officer, effective Nov. 15. https://axios.link/46DEDL0

• Sam Johnson was promoted from EVP of retail operations to president at Academy Sports and Outdoors. https://axios.link/4742WS9

• Trevor Edwards, a former Nike executive, was named to VF Corp.'s board of directors. https://axios.link/3s29CkZ

• Goldman Sachs named David Kamo as global head of financial sponsors M&A, per Reuters. He'll also continue to lead cross-border M&A. https://axios.link/3QtKpsS

5. It's Personnel

♻️ Situational awareness: Zara's owner, Inditex, agreed to buy recycled polyester from U.S. startup Ambercycle as it aims for 25% of its fibers to come from "next generation" materials by 2030.

🍔 What we're eating: Richard tried plant-based burger chain Next Level Burger and ordered the blue burger (sans BBQ) — a patty made from quinoa and mushrooms, topped with blue cheese and plant-based bacon. He also had the onion rings and a shake made with coconut and topped with strawberry compote.  

✏️ Many thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece for today's edits.

October 25, 2023

1 big thing: IPO window shrinking