Actionable news
All posts from Actionable news
Actionable news in BETR: Amplify Snack Brands Inc,

Amplify Brands: A Busted IPO And A No-Brainer Short

IPO’d at $18 with 100% of shares coming from insiders cashing out (company received no proceeds).

Stock fell immediately and has now fallen by 33%.

Company is saddled with debt and has no cash to conduct acquisitions.

IPO was rushed out due to rapidly falling growth rates and margins.

At least 30-40% further downside.

Amplify Brands (NYSE:BETR) is the maker of Skinny Pop popcorn. Skinny Pop is not intended to be a weight loss item. The term "skinny" simply refers to the fact that it is simpler, using fewer ingredients. (This article provides a side-by-side comparison of Skinny Pop vs. key popcorn competitors).

Until April 2015, Skinny Pop was the company's only product. In April, the company acquired Paqui Tortillas and at that time changed its name to Amplify Brands. However, given that the acquisition price was a mere $12 million, it is still the case that Amplify "Brands" is still largely just a one-product company - popcorn.

Amplify came public at a price of $18 in August valuing the popcorn company at over $1.5 billion in enterprise value. But the stock immediately traded down and now trades for around $12.00, down 33% from the IPO price.

Key statistics are as follows:

Market cap: $900 million

Cash: $17 million

Total debt: $198 million

LTM Rev: $151 million

The IPO of Amplify Brands is proof positive that on Wall Street, anything is possible.

The typical justification for an IPO is that a growth company needs capital to expand. The IPO brings in that capital, often at a discount to fair value. The share price pops. The company uses the fresh capital to expand. The share price continues to rise based on stronger prospects. Voila. Everyone is happy. Capitalism works.

But with the IPO of Amplify Brands, we can see that sometimes a sneaker can slip through the cracks and the IPO market can just act as a dumping ground for private equity firms who need to unload one of their portfolio companies as quickly as possible.

TA Associates purchased a 74% stake in Skinny Pop in August of 2014 for just $320 million. Within 8 months (April 2015), the company had already hired Goldman Sachs to sell the stake to a bidder. However, when no bidder materialized, TA needed an alternative.

Skinny Pop has taken on nearly $200 million in debt and ended up paying dividends to shareholders (i.e. including TA Associates) of $80 million. In April, just as TA was attempting to sell the company, Skinny Pop then acquired a tiny tortilla chip maker for $12 million and changed its name to "Amplify Brands." Now, as a seemingly diversified snack maker, the company filed for an IPO with Goldman as the underwriter.

The most unusual feature of this offering was that in the IPO, fully 100% of the shares being offered to the public came from selling shareholders. This means that none of the proceeds raised are going to the company. In fact, 82% of the shares came straight from TA.

Clearly, this should be a tough sell. After all, if the insiders are all looking to cash out and the company doesn't derive any benefit from the IPO, then why should anyone buy it?

There are a few key elements required in order to make such a transaction happen. Especially when dealing with lofty multiples such...