In a surprising turn of events, Blue Apron Holdings, Inc, a well-known meal kit delivery player, (NASDAQ:APRN) received a buyout offer from Marc Lore's Wonder Group. The deal, which offers a hefty $13.00 per share, represents a staggering 137% premium to the previous day's closing price, instantly boosting Blue Apron's stock price by a whopping 121%. This unexpected acquisition has left investors buzzing with excitement and anticipation especially since it comes after a major restructuring move by the Blue Apron management that was signed with the help of FreshRealm. Let us have a closer look and get into the details!
What Does Blue Apron Do?
Blue Apron Holdings, Inc. is a New York-based company established in 2017, that runs a direct-to-consumer platform specializing in delivering original recipes accompanied by fresh and seasonal ingredients. Furthermore, they operate Blue Apron Market, an e-commerce marketplace that provides a range of cooking tools, utensils, pantry items, and related products. Complementing their offerings is Blue Apron Wine, a direct-to-consumer wine delivery service that provides wines suitable for pairing with their meal offerings. Blue Apron caters to a diverse customer base, including young couples, families, singles, and empty nesters. Their services are primarily accessed through their website or mobile application, primarily serving customers in the United States. The company's objective is to make cooking at home more accessible and enjoyable for a wide range of consumers.
Shifts to Asset-Light Model with FreshRealm Deal
Blue Apron has had its fair share of financial struggles and has been restructuring its operations in order to manage its financial burdens. The company recently concluded a transaction with FreshRealm, transferring its operational infrastructure, including fulfilment centres, equipment, and personnel, to the latter. Blue Apron received an upfront cash payment of approximately $25 million, with the potential to gain an additional $25 million upon reaching specific milestones. This strategic move transforms Blue Apron into an asset-light company, enabling it to concentrate on expanding its direct-to-consumer business and brand. Furthermore, the company aims to introduce new products to its lineup while enhancing customer experience and brand engagement.
The detailed transaction terms reveal that FreshRealm acquired Blue Apron’s operational assets in exchange for upfront cash, a note payable, a contingent cash payment, and additional rebates, all conditioned on Blue Apron hitting operational and financial milestones. Utilizing the transaction's proceeds, Blue Apron cleared all outstanding senior secured notes, successfully eliminating its debt. The adoption of an asset-light business model allows Blue Apron to streamline operations, reduce administrative costs, and achieve cost savings. This approach not only leads to a reduction in year-over-year cash burn but also positions the company to attain profitability more swiftly. With a renewed focus on brand, marketing, product development, and consumer experience, Blue Apron anticipates greater agility in decision-making, an improved balance sheet, and reduced PTG&A costs.
The companies also entered a 10-year production and fulfillment agreement, making FreshRealm the exclusive supplier for Blue Apron’s meal kits. Blue Apron also granted FreshRealm licenses to use its brand and software under specific conditions, and subleased facilities in California and New Jersey to FreshRealm. Blue Apron's strategic path forward involves building an ecosystem of partners and relationships, with FreshRealm as its fulfillment partner. This transition to an asset-light model enhances efficiency and shareholder value, and the company retains full control over its direct-to-consumer business, including recipe creation, marketing, data, and technology support.
The partnership with FreshRealm allows Blue Apron to reduce fixed and variable costs, streamline operations, and introduce new products efficiently. The company also plans to explore new revenue-enhancing opportunities while leveraging its brand strength and culinary expertise.
Blue Apron's Financial Struggles
Blue Apron has been facing challenges in recent times, with its stock price trading well below its 52-week high. Its revenues have halved from 2018 levels and it continues to have a negative operating margin of 16.7% for the trailing 12-month period. The FreashRealm deal has helped remove the debt on its balance sheet but the fundamental challenges to its business remain. While the elimination of debt might seem like a victory, it provides no guarantee against future financial mismanagement. The much-touted 72% year-over-year improvement in quarterly cash burn, amounting to a saving of $13.2 million, is but a mere drop in the ocean considering the company’s financial history.
The company might have unrestricted access to cash reserves, but with reduced customer numbers (masked by an increased average order value and revenue per customer due to slashed marketing spend), the customer base's long-term stability is questionable. Blue Apron's overconfidence in its refined marketing strategy and improvement in customer engagement metrics seems misplaced and overly optimistic, considering the volatile market and the myriad challenges that the meal-kit industry faces. The management's celebration of financial stability and commitment to quality seems premature and possibly unfounded, as the shadows of past financial instability loom large. However, the merger with Wonder Group appears to be a game-changing move that has the potential to revitalize the company and redefine its role in the mealtime industry.
Source: Yahoo Finance
We see a huge spike in Blue Apron's stock price after the Wonder Group offer. Even after the spike, Blue Apron's stock is trading at an Enterprise Value/ Revenue multiple of less than 0.5x and evidently Wonder Group seems to have got a good deal. With Wonder Group's strong commitment and financing already secured, there are no financing hurdles or regulatory approvals standing in the way. The synergy between the two companies promises to enhance mealtime experiences, offering choice, flexibility, and convenience to a broader customer base, and potentially paving the way for a resurgence in Blue Apron's fortunes.