Almost exactly 10 years ago, New York private equity firm Solera Capital LLC took a fancy to a rabbit logo on a purple-colored box of macaroni and bought the company behind it -- Annie's Inc. Solera, then something of a startup private equity outfit itself, would not have known that the bunny mascot, named after founder Annie Withey's pet rabbit Bernie, would inspire a runaway moneymaker now worth about $700 million.
Since the Berkeley, Calif.-based natural and organic food maker went public in late March, perhaps the year's splashiest nontech offerings this year, its shares have doubled. Its stock priced at $19 and now hovers around $40, roughly 33 times adjusted Ebitda for the fiscal year ended March 31.
After unloading about 4.05 million shares in the initial public offering, Solera and other minority shareholders plan to sell another 3.17 million shares in a secondary share sale. The company on Wednesday, Aug. 1, priced the offering at $39.25 apiece, just below Tuesday's $40.75 close.
For Solera Capital, with just a handful of investments to show for its 12-year history, it's a vindication, albeit one that, by PE standards, was a long time coming. The firm has raised one fund, which invested in five portfolio companies, including Latin Media Ventures LLC, parent of popular Latina Magazine, and Little Clinic LLC, operator of walk-in clinics in Kroger Co. grocery stores.
Of these Annie's appears to be the solitary home run.
Net sales for the mac and cheese purveyor, now churning out some 125 organic products ranging from fruit snacks to crackers to frozen pizza, has roughly doubled in four years, to $141.3 million in 2012, from $76.8 million in 2008. Adjusted Ebitda, accounting for management fees and other items, rose from $9.3 million in 2010 to $21.3 million in 2012.
Its IPO most likely benefited from pent-up demand for growth stories and Annie's limited float of about 5 million shares. Despite the fact that the bulk of the IPO proceeds went to Solera, along with CEO John Foraker and minority shareholder Najeti Ventures LLC, investors evidently saw promise in Annie's "Rabbit of Approval"-stamped brands.
Given Annie's sleeper success so far and the strong stock performance, Solera now appears to be in a rush to head for the door. And why not? With pundits pointing to Annie's as an attractive shorting target, timing is of the essence.
It can now sell again at any time because, effective July 31, its underwriters, Credit Suisse Securities and JPMorgan Securities, said they would waive a lock-up restriction with respect to about 3.6 million shares of the company's stock held by certain stockholders of the company.
It's important to note, as an amended filing dated July 30 did, that an affiliate of JPMorgan Securities holds an ownership stake of approximately 10% in Solera Partners LP, the selling stockholder in the offering, and will receive 5% or more of the net proceeds from the offering.
Not counting any underwriters' option exercise, Solera Capital's profit taking from the secondary sale represents realized and unrealized profits of roughly 6 times cost, based on the secondary sale pricing and Wednesday afternoon trading at $40.
That should mollify Solera's institutional backers -- California Public Employees' Retirement System and Oregon State Treasury among them -- that might be otherwise unhappy with the fund's less-than-sterling report card. Solera's fund, which raised $250 million in 2002, was showing a 7.4% net internal rate of return in December; it got a boost by the end of March, presumably from Annie's IPO, rising to 9.7%, according to public disclosures.
Little else is known of Solera's portfolio fund performance. Kroger acquired Nashville, Tenn.-based Little Clinic in February 2010 for a reported $86 million, after exercising an option to buy the business in its entirety. (The firm did not return calls requesting comment.)
Solera, a mostly female buyout shop, was launched in 1999 by ex-JPMorgan leveraged buyout executive Molly Ashby and two others, Lori Koffman, formerly with CIBC Capital Partners, and Karen Mills, founder of private equity adviser MMP Group Inc. Mills was later appointed as administrator of the Small Business Administration in 2009. Koffman was ordained a rabbi in 2010 after spending 19 years on Wall Street, leaving Ashby as sole managing partner.
With Annie's bestowing its blessings in kind, Solera should stand a better chance among institutional investors, if and when it decides to raise another fund.