Growing Goodness, Annie’s Way

Fourth Quarter 2013
Corporate Board Member
by Deborah Scally

For investors who nabbed the offering of 950,000 shares of common stock at $19 a share in March 2012, Annie’s has certainly made good on its tagline “Growing Goodness.” In the 18 months since its IPO, the Berkeley, California-based company, trading as BNNY on the NYSE big board, has performed extraordinarily well. In fact, it jumped 89% on its first day of trading, making it the best first-day IPO performance since LinkedIn the year before. Moreover, since its initial catapult, the stock has chugged steadily upward, closing at around $49 at the current time.

Annie’s is one of the new breed of company whose mission reaches beyond its P&L, thus creating tremendous brand loyalty and positive messaging. Despite an unabashedly cute persona–its ubiquitous bunny logo can’t help but draw a smile– Annie’s performance is anything but lightweight. Boasting substantial investment and managerial talent behind the scenes for more than a decade, Annie’s has successfully transformed itself from a quiet, niche organic and natural food company to a big league player.

Working hand-in-glove, CEO John M. Foraker and board chair Molly Ashby are largely responsible for this evolution. Bringing the gravitas of 16 years as JP Morgan Capital’s chief investment strategist where, among other things, Ashby was a key member of the team that organized the $5.1 billion leveraged buyout of HCA Holdings, this mother of two has been instrumental in Annie’s growth and progress since 2002. Ashby’s interest in developing and funding companies she sees as worthwhile stems from the founding philosophy of her own investment management company, Solera Capital, which she launched in 1999 and serves as CEO. Simply stated, Solera’s philosophy is to identify and invest in modern companies that bolster the values Ashby and her colleagues stand for: sustainability, diversity, and responsibility. Thus, two key ingredients–Solera’s capital injection plus the untapped growth potential of the organic and natural food market–have created the perfect recipe for Annie’s success. Over the course of its 10 years of ownership, Solera invested $81 million in Annie’s, an investment that multiplied roughly sixfold at the time of the IPO in 2012. Today, Annie’s enjoys a market capitalization of more than $830 million.

Since 2002, the Annie’s team has worked to push its products out of the dusty, organic and natural food shelf to take their rightful place in the mainstream market. To make this a reality, management and the board realized wider backing would be necessary, so for the last two years, Ashby has overseen a calm and ordered private-to -public transformation, facing head-on the opportunities as well as challenges that come with running a publicly traded company. Shortly after the announcement of its positive Q1 2014 financial results, as well as an announcement the company was expanding its presence with family entrees, Corporate Board Member interviewed Ashby about her experiences and her perspective in the rearview mirror to offer proverbial food for thought to others who may be considering a similar path.

Molly, we’d like to talk about your experience navigating Annie’s through its post-IPO first year, but it might help set the stage for you to tell us about your principal company, Solera Capital, and how it came to take a major stake in Annie’s more than a decade ago.
Certainly. Solera is a growth investor, and its focus and mission is to identify and to work closely with companies in sectors we believe have really strong growth prospects— those that are well positioned for the long-term. We bring a lot of capital, focus, and operating expertise into the building of our companies. So, by way of background, we have Annie’s in the organic
and natural sector, we also have a company, Latina, in the Latin space, an affordable luxury company called Calypso—all of which are in sectors we believe have exceptional, long-term prospects. We also built a consumer health care company called The Little Clinic from two to more than 100 clinics before selling it to our partner The Kroger Co. in 2010.

Specifically, we made our acquisition of Annie’s in 2002 because we loved the growth we saw in the organic and natural space. It was intriguing to us that there were few companies of size and scale in that space. We also believed that, while the growth itself was strong, there would be an acceleration of growth coming from the distribution of natural and organic [foods] in mainstream channels. What was also very important to us, as it is in all of our companies, was a very strong alignment with the founder and the leadership team as well as with the values and the mission of the company. At Solera, we’re really hands on, we’re operations focused, and we take long views on sectors, but we are centered on a mission and a core set of values that are really important to us. We just found outstanding alignment with Annie’s on all those fronts.

So you first came aboard Annie’s as a director in 2002 and then took over the chairmanship in 2004. Turning to the relationship you have with the leadership and company today, you and CEO John Foraker have both been there for a more than a decade, yet the rest of the board members are relatively new by comparison. Was there a concerted effort to recraft the board to meet the challenges ahead as you looked at going public?
Yes. The long-term advanced planning for this kind of undertaking is really important, so as part of that process you determine what an optimal board of directors would look like—the experience, expertise, skill, etc. needed, because the requirements of a public company are different than those of a private company. We began a good, strong dialogue with several prospective board members with that in mind and began that process significantly ahead of the IPO.

How did you approach that task? That’s a big undertaking, even outside of all the details related to the IPO mechanics, financing, regulations, and so forth.
Specifically, we looked at potential directors who had served on large, public companies because we knew Annie’s was growing rapidly, and that experience would be tremendously valuable. We also looked for experience in specific functional areas, such as finance, audit, consumer products, and IT. We looked specifically at how the members would complement each other from a skill set standpoint, as well as generally. It was important that our directors had expertise that our management team would be able to draw on in important functional areas. So we were really building a matrix as we went along. And then, for us at Annie’s, an extremely important overlay was strong alignment with our values, our mission, and our approach, which is what we look for in all our companies.

That’s a lot of things to put in that matrix.
It is. And we are continually building and growing and developing our board, because we want the board to gel–to work well together, to have the right set of complementary skills, to be aligned on mission and values, and provide exceptional oversight and assistance to management.

I can appreciate the amount of effort that’s gone into that thus far. How have you evaluated the board since the IPO?
A good public board is like a living, breathing organism. And so it’s important to look at the evolving needs of the company and whether the board is positioned to address those needs. You need to be asking these questions: How are we doing? Do we have all the skills we need? Are we the right size? Have we got all the committee alignments right? There’s an ongoing process of self-evaluation.

So in terms of laying the groundwork for the IPO, how early did you start?
It was more than a year. We knew if we wanted to seriously entertain going public, we needed to do a great deal of planning and have access to good advice. We gave ourselves lead time to make sure the company was ready and we had the right team in place—at both the board and management levels— and had all our processes lined up. John and I needed to ensure that our lawyers, accounting firms, prospective underwriters, and the organization, at a deep level, were all aligned on the requirements of being public, and were starting to think through and create a really thoughtful timeline. You could perhaps do it quicker than a year, depending on the company, but for us it was more than a year. And during that period we continued to evaluate going public versus other strategies.

So as you stepped back and made those assessments, how did you really know when the time was right? What turned that light green?
We considered the readiness of governance, legal, the management team, and the depth of reporting capabilities within the company.

What good advice did you get that helped you and the Annie’s team move through the transition from private to public?
One piece of excellent advice was to start behaving as if we were a public company before we were actually out in the public arena. This helped us refine the way we did things and made judgments about our degree of readiness.

So it sounds like you had a good process for gauging your readiness and laid your groundwork well in advance of
the initial public offering. Were there any surprises this past year? Things that were perhaps either easier than you expected or more challenging?
I would say that you get a lot of good advice but still the IPO experience is eye opening. Amassing the resources needed to be public–from human resources, adviser teams, in-house teams, and systems and processes to communicate and engage thoroughly and thoughtfully with shareholders– is a big issue. We think of our shareholders as our public investment partners, so the resources, time, and focus we put into our relationships with our investors is huge. This is perhaps the single greatest distinction moving from the private to the public arena.

Indeed, and the tide can change quickly, and sometimes in reaction to external things that are not in your control.
Yes, management and the board need to work together to make sure enough thought, support, people, and resources are being applied in this area.

So touching on this important aspect of investor relations and shareholder activism, we’ve seen a groundswell of investor interest in recent years in corporate social responsibility, which is something that is ingrained in the fabric of Annie’s and has been for years. Have you felt any tension thus far in trying to balance a philosophy of social responsibility and the pressure to meet investor performance expectations?
No, and I know [Annie’s CEO] John Foraker and I share the same perspective here. We saw the public offering as a wonderful way to enable others to share in the growth of a business we felt really strongly about. We were able to do it because we had worked hard in preparation, and because John and I and the board all had confidence in the business and in the team’s readiness. In addition, we felt very strongly that it was important for this kind of company to go public and to show that Annie’s mission and values were truly enabling to the business. It was very important and powerful and energizing for us to think that if you could take this company public, you could really demonstrate that you can be true to your values and produce results that translate into long-term shareholder value.

It must be tremendously gratifying to feel that all those things are firing in sync.
Yes, and while we are proud that the IPO has been a success, John and I and the entire Annie’s board hope and believe that our success shows that public shareholders appreciate how values can truly be enabling from a financial standpoint.


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