Oatly, the world’s original and largest oat milk company, and Duckhorn Portfolio, the #1 largest pure play U.S. luxury wine company out of Napa Valley, both have gone public here in early 2021. They have both been treated incredibly well in the public markets by institutional and retail investors.
This is exciting news for investors in the Green Coffee Company (GCC), our portfolio company.
Oatly and Duckhorn are being rewarded in the public markets because of their uniqueness in their industries, strong distribution channels, B2C client reach and apparently strong emphasis and compliance with sustainability and ESG norms, in addition to overall rising equity markets.
At the close of trading in their common stocks on each of their first days on the public markets (Nasdaq for Oatly, NYSE for Duckhorn) these companies had market valuations of approximately $14 billion and $2 billion, respectively. Those market values are equal to whopping multiples of traditional valuation metrics such as revenue and EBITDA.
| Company | Oatly | Duckhorn Portfolio |
| Valuation | $14 billion | $2 billion |
| Multiple of 2020 Full-Year Revenue | 33x | 7.38x |
| Multiple of 2020 Full-Year Earnings | N/A. The company had a $60 million loss in fiscal 2020. | 61.7x its 2020 profit of $32.4 million. |
Neither company, Oatly or Duckhorn, pays or apparently plans (based on their pre-IPO disclosure) to pay a dividend. In contrast, the GCC expects to pay annual dividends beginning this year in 2021 and then annually until an exit date. The public markets should reward GCC in comparison to these other companies for this investor-first approach.
Are markets accurately reflecting the value of Oatly and Duckhorn? Perhaps yes, perhaps not. For many pre-IPO investors in these companies, however, that question of accurate valuation is now largely irrelevant – they have liquidity and can sell their shares of these companies on the exchanges at these high valuations if they wish to.
So, why are we, a coffee company, talking about an oat milk company and a wine company? These companies, although they are in different industries, largely mirror what we expect the GCC to look like at the time of a potential IPO of the GCC, which we target for 2025: a vertically-integrated business that holds a #1 position in its market in a valuable commodity (coffee) selling a high-quality consumer product, with social and environmental responsibility built into the fabric of the company. So just how big do we think a GCC IPO could be for our investors?
The GCC’s story is more compelling:
We think the GCC story is, setting aside any of our own potential biases, much more compelling than the stories of Oatly and Duckhorn. Take a look – which of these three companies would you expect public markets to value most greatly?
| Story | |
| Oatly – at IPO | World’s original and largest oat milk company. Competitor is the entire global dairy industry and other dairy-substitutes such as almond milk, cashew milk and coconut milk. |
| Duckhorn Portfolio – at IPO | #1 largest pure play U.S. luxury wine company. Producer of Napa Valley wines. Competes in the incredibly highly competitive market of $15-$200 bottles of wine. |
| GCC – at 2025 projected IPO* | The largest producer of coffee in Colombia – the world’s third largest coffee-producing country. Coffee has been declared the country’s national product. Over 2.25 billion cups of coffee are consumed globally daily. Coffee is the world’s second most traded commodity. Distribution model focused on U.S.-based wholly-owned roasters and brands, along with sales to domestic and international large-scale coffee buyers. GCC competes against no comparable investment opportunity. Brazil and Vietnam produce more coffee than Colombia, but there are no investment opportunities available in their market-leading companies. |
| Sustainability | |
| Oatly – at IPO | Sustainability initiatives focused on converting customers to an alternative product to dairy that requires substantially less land and energy for production and emits less greenhouse gases. Remaining initiatives lack the specification necessary to quantify. |
| Duckhorn Portfolio – at IPO | Company states that it utilizes sustainable winegrowing techniques and employs responsible land and water stewardship practices, but the initiatives lack the specification necessary to quantify. |
| GCC – at 2025 projected IPO* | Developed sustainability strategy with initiatives broken down into main pillars: – Environmental conservation restoration and management (substantial reforestation and protection of waterways) – Worker well-being & formal employment in the coffee sector (full-time employment, with benefits, of 200+ workers) – Economic development & community engagement (serve as larger employer of females where we operate) |
| Dividend Policy | |
| Oatly – at IPO | Stated Oatly company position: “We do not anticipate paying any cash dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.” |
| Duckhorn Portfolio – at IPO | Stated Duckhorn company position: “Our board of directors does not currently intend to pay dividends.” |
| GCC – at 2025 projected IPO* | Stated GCC company position: “Annual dividends expected beginning this year in 2021 and extend annually until an exit date. |
If the alternative dairy or wine spaces are appealing to you as an investor, Oatly and Duckhorn have a lot of competition for investment dollars. Oatly competes, per its stated disclosure, for investment capital with “PepsiCo, Coca-Cola, and Chobani, traditional dairy companies, such as Nestlé, Danone, Lactalis, Fonterra HP Hood, Arla Foods and Valio, plant-based dairy companies, such as Blue Diamond Growers, Califia Farms, Ripple Foods, and Ecotone, [and] new market entrants building lab-based products and private-label brands.” Duckhorn, as anyone who knows the wine industry knows, has almost innumerable competition, where success depends on the creation and, more challengingly, the maintenance of a brand that people want to buy.
The GCC – in the world of investment opportunities in a sustainable coffee company that holds the number #1 market position in a country like Colombia, which is macro-economically significant in the coffee industry, and that will go B2C, all while still being U.S.-headquartered – stands alone. We have not presented any comparable coffee investments here because there are none.
We have work to do to get the GCC to where we want it to go. Our path, however, is clear:
Milestone 1: Complete Existing Financing Round and Deployment of Equity Capital
The GCC is one round of acquisitions away from becoming the largest producer of coffee in Colombia, the world’s third largest coffee-producing country. We are currently raising $9.6 million in equity to complete 2021 infrastructure and acquisition initiatives. When we are done, we will have approximately $25 million of assets on our balance sheet.
Milestone 2: Debt-Financed Acquisition and Build-out of New Round of Farms
We already have pricing and interested sellers for the acquisitions that we need to do in 2022 to get us to the #1 position. With $25 million of assets on the balance sheet, we expect, based on conversations that are already ongoing with lenders, that the additional $10 million that we will need for those acquisitions and development will come in the form of readily available debt financing.
Milestone 3: U.S. Roaster Acquisition and B2C Presence
We then further begin to mirror Oatly and Duckhorn at the times of their IPOs as we will embark on our strategy to acquire productive regional coffee roasters located in the U.S. These acquisitions mean that GCC coffee will flow directly from our farms in Colombia to our roasters in the U.S. and be used to fill orders of our B2C distribution clients. Going direct-to-client with our coffee, while also controlling the costs of our coffee since we are growing it on our own farms (versus traditional roasters that must acquire coffee from importers), we see huge profitability. Currently, we need about $1.20 to produce a pound of coffee. A good, current price for that green coffee when we sell to large, international importers is approximately $2.00 per pound, so about $.80 per pound of profit. When we can (1) import our own coffee, (2) roast it and (3) sell it directly to consumers, the pricing becomes much more attractive to investors. Our costs to produce will be closer to $2.00 per pound, but our resale price of our mid-range and specialty coffees will be closer to $6.00 and $9.00 per pound, respectively. The net result of these B2C sales would be under these conditions a 5.0-8.75x increase in profitability versus the “grow-then-sell-to-importers” model for this same coffee.
The roasting partners we seek will combine to do about $25 million in revenue – a business size where experience teaches us that we can find distressed sellers and where we will not be bidding against private equity funds with more available capital – with portfolio brands and open distribution channels. We plan to acquire these roasters through a combination of debt and equity financing. Our objective will be to use those roasters to distribute approximately 50% of our 2025 targeted coffee production, which would add approximately $25 million in annual revenue to the GCC using sales prices at the low price point of $6.00 per pound (4.2 million pounds of GCC coffee expected to be one-half of 2025 production). Our research shows that there are approximately 2,400 existing coffee roasters in the U.S. We will continue to be diligent in our assessment of targets until we can find roasters that can meet these profitability goals for our investors.
We plan to complete this “three-milestone-process” over the next three to four years to position ourselves for a 2025 IPO, with 2024 as a preparation year. We selected 2025 for this analysis because that was the projected exit year for initial investors in the business.
“We plan, God laughs,” many business owners and investors know. Looking at where the business is now – and let’s assume that we engage in no additional growth initiatives in 2022 other than those already planned or 2023 and never go B2C – simply by optimizing land and offloading product to our existing clients we still expect to pay dividends annually beginning this year and project an annual 26% IRR to investors through a 2025 exit.
That is a strong “base case” scenario, along with $25 million of assets on the balance sheet, to go along with all the upside potential available if we reach our actual goals of entering the public markets.
Our Goals for GCC Investors:
We´re compelled to end by sharing with you our belief, using Oatly and Duckhorn as comparables, about where we actually believe that we are going to take the GCC as we push to take GCC to the public equity markets.
Oatly IPO Value
In 2020, its last full year prior to going public, Oatly did annual revenues of $421 million and had a net loss of $60 million. It closed trading on its first day on the Nasdaq at a $14 billion valuation, or 33x revenues. Its market valuation compared to its profits, because it had a loss, is incalculable.
Duckhorn IPO Value
In 2020, Duckhorn had annual revenues of $271 million and showed profit of $32.4 million. Duckhorn closed trading on its first day on the NYSE at an approximately $2 billion valuation, or 7.38x its 2020 revenue. It closed trading that day at a massive 61.7x multiple of 2020 profits.
Potential GCC IPO Value
We believe that we will execute on our “three-milestone-process” of growing the GCC as described above. If we do, we are currently projecting 2025 revenues of approximately $40 million, which will combine our B2C and B2B revenue channels, with approximately $11 million in resulting EBITDA in the business. Looking at our comparison companies and how they closed their first public trading days, assuming stable or even reduced general market conditions and valuations, we believe it would be reasonable to expect that GCC would open trading in the public markets with a multiple to revenue similar to that seen in the Oatly and Duckhorn trades. In an effort not to over promise despite our more compelling business model and market position, if we take the low end of that comparable range, or 7x revenue, GCC would trade on its first day at a market valuation of approximately $280 million.
What does this mean for investors in our current funding round?
In our “base case” scenario of achieving only milestones 1 and 2, we presented above that investors could expect annual dividends throughout their investment and an annual IRR through a 2025 exit of 26% at a $74 million company valuation.
If we can, however, follow the path of our comparable companies and enter the public markets as described above and receive a market valuation at the low end of our comparable trading range, we believe investors can reasonably expect annual dividends and an annual IRR through a 2025 exit of approximately 48% at a much larger $280 million company valuation. This would result in $6.71 returned to investors for each $1.00 that they invest.
Click here to discuss an opportunity to invest in our portfolio company, The Green Coffee Company.
About Legacy Group
Legacy Group is distinguished by a singular tradition of service to our portfolio partners; the mutual commitment to, and the seamless collaboration of, a true partnership; formidable financial and legal talent across multiple disciplines and jurisdictions; and shared professional values that focus on client needs.
We provide experience and investment to a wide range of private companies spanning many industries, including real estate, hospitality, tourism, agriculture and technology. Click here to contact us to discuss an investment in The Green Coffee Company.
Resources:
Green Coffee Company Operational team bios: https://gcc-coffee.com/about-us
Legacy Group Asset Management team bios: https://legacy-group.co/about/#who
Oatly initial public offering prospectus: https://www.sec.gov/Archives/edgar/data/0001843586/000119312521168012/d123209d424b4.htm
Duckhorn initial public offering prospectus:https://www.sec.gov/Archives/edgar/data/0001835256/000119312521087674/d90982d424b4.htm
https://www.ico.org/#:~:text=In%202019%2F20%2C%20world%20coffee,in%20coffee%20year%202019%2F20.
https://www.iposcoop.com/last-100-ipos/
This communication contains forward-looking statements that represent our beliefs, projections and predictions about future events or our future performance. These forward-looking statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievements described in or implied by such statements. You should not place undue reliance on these forward-looking statements because such statements speak only as to the date when made.
