IPO Launch: Mission Produce Finalizes $150 Million IPO Effort

IPOStreet

Mission Produce (AVO) has filed to raise $150 million in an IPO of its common stock, according to an S-1 registration statement.

Oxnard, California-based Mission was founded to develop an integrated avocado supply chain, from sourcing to production and distribution.

The firm produces avocados on its own land as well as sources avocados from third party growers to provide customers with year round supply.

Management is headed by founder, president and CEO Mr. Stephen Barnard, who was previously in the lettuce and avocado divisions of Santa Clara Produce and has served in senior leadership roles in various industry trade association trade groups.

Below is a brief overview video of Mission Avocados:

Source: Mission Produce

The company’s primary offerings include:

  • Ripening
  • Bagging
  • Custom packing
  • Logistical management
  • Merchandising & promotional support
  • Training

Mission has received at least $139 million from investors including Beldar Enterprises.

The firm sells its produce through distributors via a global distribution network.

The U.S. is the company's largest single market and the Hass avocado accounts for approximately 95% of avocados consumed in the U.S. and 80% of avocados consumed on a global basis.

Selling, G&A expenses as a percentage of total revenue have risen as revenues have increased.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, dropped to 0.1x in the most recent reporting period.

According to a 2020 market research report, the global market for avocados is expected to grow from an estimated $14 billion in 2020 to $19 billion by 2027.

This represents a forecast CAGR of 4.8% from 2020 to 2027.

The main drivers for this expected growth are increased consumption of avocados in China, which expected to grow at a much higher CAGR of 7.4% from 2020 to 2027.

Also, the markets of Canada, Japan and Germany are expected to grow at 4.3%, 2.6% and 3%, respectively, growing at a slower rate than the overall growth rate.

Major competitive or other industry participants include:

  • Calavo Growers (CVGW)
  • Fresh Del Monte Produce (FDP)
  • Westfalia
  • Del Rey Avocado Company
  • Henry Avocado
  • Olivado USA
  • Superior Foods Companies
  • The Horton Fruit Co.
  • Salud Foodgroup Europe B.V.

Mission’s recent financial results can be summarized as follows:

  • Growing topline revenue, but at a lower rate of growth
  • Contracting gross profit and uneven gross margin
  • Lower operating profit and operating margin
  • Uneven cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

missionpl

Source: Company registration statement

As of July 31, 2020, Mission had $36.5 million in cash and $319.1 million in total liabilities.

Free cash flow during the twelve months ended July 31, 2020, was $22.8 million.

Mission intends to raise $150 million in gross proceeds from an IPO of its common stock.

The company will sell 6.25 million shares and existing shareholders seek to sell 3.125 million shares at a proposed midpoint price of $16.00 per share.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $1.2 billion, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 13.52%.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds for working capital and other general corporate purposes, which may include the repayment of indebtedness, and to fund future acquisitions (if any).

As of July 31, 2020, we had no borrowings outstanding under our revolving credit facility and borrowings of approximately $169.3 million outstanding under our term loans, comprised of Term Loan A-1 and Term Loan A-2. The revolving credit facility and Term Loan A-1 mature in October 2023 and the Term Loan A-2 matures in October 2025.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are BofA Securities, J.P. Morgan, Citigroup, Roth Capital Partners, Stephens and D.A. Davidson & Co.

Commentary

Mission is seeking public funding to pay down debt and for selling shareholders.

The firm’s financials show slowing topline revenue growth and reduced operating profit, net income and cash flow from operations.

Selling, G&A expenses as a percentage of total revenue have risen; its Selling, G&A efficiency rate has dropped significantly in the most recent reporting period.

The market opportunity for avocado consumption on a global basis is expected to grow at a substantial rate, with China representing the primary growth driver. Mission has facilities in China to serve that growing market.

Mission has the advantage of a fully integrated supply chain which should enable it to take advantage of growth opportunities as demand increases across the globe.

Management says it has ‘experienced minimal disruption to our overall business and have not experienced a significant loss of demand’ for its products during the Covid-19 pandemic, so would appear to be relatively less affected by the outbreak.

BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 76.0% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, compared to direct competitor Calavo, Mission is growing revenue and producing earnings where Calavo is experiencing a contraction, so the IPO multiples appear reasonable.

AVO appears well positioned to take advantage of a growing Chinese appetite for avocados, is relatively insulated against the Covid-19 pandemic’s effects and the IPO appears reasonably priced, so my opinion on the IPO is a BUY at up to $16.00 per share.

Expected IPO Pricing Date: September 30, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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