Oatly’s IPO


By Alexis Bernet, Olivier Baverez, Martín Polomar (HEC) and Ratish Singh, Luc Roberts (Warwick)

 

Summary of IPO


The Swedish Vegan milk Oatly went public on Thursday 20 May 2021 on Nasdaq. Oatly raised $1.43B and the listing gave the company a valuation of about $12B.


Oatly tap both into the favourable context for IPOs and the surge in demand for vegan products. Oatly has experienced significant growth in the last few years. In 2020, its revenue more than doubled, to $421M. Oatly is now the first oat-milk company in the US, in Sweden and the UK. Oatly is a very popular company, enjoying the support of some celebrities (Jay-Z; Oprah Winfrey) and the success of its marketing strategy.


The money raised should fund growth according to Oatly. Oatly faces a highly competitive sector with big food companies (Nestlé, Danone) and a smaller one which rides the trend f vegan food (Beyond Meat).


Company and IPO Profile:

  • Sector(s): Vegan food - Oat Milk

  • Exchange floated: Nasdaq

  • Amount raised: $1.434B

  • Offered price and number of shares: $17 and 84.4M shares including 19.7M existing shares and 64.7M new shares.

  • Over-allotment option: 12.7M shares from selling shareholders

  • Equity offered: 15%

  • Valuation and relevant multiples at IPO:

  • Market Capitalization: $12B

  • EV: $13B

  • EV/Revenue: 30.8x

  • Coordinators/Advisors

  • Lead book-running managers: Morgan Stanley, JP Morgan and Credit Suisse

  • Book-running managers: Barclays, Jefferies, BNP Paribas, BofA, Piper Sandler and RBC Capital Markets

  • Notable investors: China Resources in partnership with Verlinvest. Oprah Winfrey and Jay-Z


Strategic Rationale


Widening the product portfolio is Oatly’s number one priority. Proceeds from the IPO will be invested to that end. If we think of the US market for plant-based milk, Oatly’s share (4.3%) is dwarfed by that of bigger veteran companies like Danone (30.2%). This strategy is called concentric diversification in the theory of managerial economics; by developing products in the adjacent market to that of plant-based milk, like Oatly’s “oatgurt”, the company appeals more to consumers and harvests more sales among the already existing consumers in new and different product varieties. As a result, Oatly expects newfound paths of profitability and a stronger hold on the market.


Along with broadening the array of products, Oatly plans to build new manufacturing facilities with the raised capital. Indeed there is still a lot to be made in milk. The global market for plant-based milk alone is expected to be worth $19.5b by 2024 (Goldstein Research).


Admittedly, because of the negative EBITDA, Oatly is dragging (-33.6% of revenue 2020) some of the cash raised may be directed towards debt settlement ($233M total debt as of December 2020). However, this is not certain, and a mention of it is nowhere to be found in official statements.


Market Reaction


Build Up

Founded in 1995 in Sweden, Oatly brands itself as the world’s first and largest oat milk company, having offered plant-based milk alternatives to consumers for over two decades. Its best-selling products in the UK and Germany have allowed Oatly to emerge as the market leader in these core European markets which has boosted profitability, with the EMEA region being the most profitable geographic region for the company. Oatly’s largest stakeholder is investment vehicle Verlinvest at 47.5%, which has a diverse food & beverage portfolio including coconut water company Vita Coco. Alongside other institutional shareholders such as Blackstone vehicle BXG Redhawk, individuals shareholders Oprah Winfrey, Natalie Portman, and Jay Z have attracted media attention to Oatly in the run-up to the float.


Launch

The stock (NASDAQ:OTLY) climbed 29% from $17 to $22.7 per share in its opening trading session, representing a market cap of $13.4bn. In the week following the IPO, the market has continued to support this valuation, with the stock trading between $20.3 and $23.7. The positive market reaction highlights the significant growth opportunities for Oatly and the broader oat milk industry, with relatively weak penetration of milk alternatives globally. The increased focus on impact and ESG-centric investment has also contributed to Oatly’s success. Their flagship cow milk alternative claims to release 80% fewer greenhouse gases and consume 60% less energy.


Potential Risks and Downsides