May 12, 2015 - 10:16pm EST by
2015 2016
Price: 11.19 EPS 0 0
Shares Out. (in M): 45 P/E 0 0
Market Cap (in $M): 508 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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Boulevard Acquisition Corp (BLVD) is a platform acquisition company sponsored by Marc Lasry's Avenue Capital. Post the announced acquisition of AgroFresh from Dow Chemical two weeks ago, Boulevard is now a leader in post harvest specialty chemical solutions for growers, packers, shippers and importer/exporters in the fruit and vegetable space. In a unique structure to SPACs and Fortune 500 companies, Dow will retain a 40% interest in the company, the entire management team is staying in tact and Head of Dow M&A Tom MacPhee is leaving to run the business. The business has 56% ebitda margins, little working capital needs and spends only 1% of sales on capex. Furthermore, former AgroFresh management noted that despite being run as a cash cow within Dow their historical growth has been phenomenal, as evidenced by ebitda growth in most recent years at 38% and 23% in '13 and '14. This compares to the slide deck the company released on announcement of the deal which has ebitda growing 4% and 5% in '15 and '16. I believe this is management conservatism. If as little as 15% ebitda growth is achievable, as history would indicate, this equates to more than $109 and $126 million of ebitda in '15 and '16. With 45.4mm shares out, 17.2mm warrants (BLVDW) and 425mm of debt, at the current price of $11.19/shr investors are creating an interest in the company at a $933mm EV and 8.5x ev/'15 ebitda. While there is little information available on the company currently, I believe this presents an opportunity for enterprising investors. 

AgroFresh views themselves as a data-driven sales company, providing post-harvest solutions to the vegetable and fruit space, allowing customers to better manage their produce, supply chains and ultimately reduce waste. AgroFresh's largest offering is SmartFresh, which delays the ripening of fruit and vegetables, while Harvista, the company's new pre-harvest product allows fruit to stay on the tree longer and grow larger before being picked. The company was founded in 1999 by Rohm and Haas based on the discovery of 1-MCP at NC State. With more than a decade of exclusive data and application experience, employees are experts in produce storage and supply-chain management involving the use of SmartFresh, a miracle technology. SmartFresh is used in climacteric fruit and vegetables to block ethylene receptors and thus pause the ripening process, allowing one to store produce with no change in taste or appearance. Climacteric produce include: apples, pears, bananas, avocados, flowers, broccoli, plums, mangos, cantalope, kiwis, tomatoes, etc. Here's how it works. SmartFresh is C4H6 - 4 carbon and 6 hydrogen molecules. Ethylene, which drives the ripening process, is C2H4 - 2 Carbon and 4 Hydrogen molecules. Both have a double carbon bond. That double carbon bond is the key that fits in the fruit's ethylene receptor site. The fruit is looking for C2H4 (ethylene). Then C4H6 (SmartFresh) comes along and the fruit likes it even more than ethylene. SmartFresh fits in the receptor site and blocks it. The beauty of the technology is SmartFresh doesn't stay at the binding site - it is broken down by the fruit’s natural process and biodegrades into simple molecules containing carbon, hydrogen, and oxygen. The carbon and hydrogen are like the carbon and hydrogen naturally present in the environment and the fruit, which is why there is no trace left behind. 24 hours later the carbon and hydrogen are gone, there is no residue, and the fruit is left with no more receptor sites. This process when combined with controlled atmosphere (lower oxygen / carbon dioxide levels and lower temperatures), can preserve produce for an unbelievably long period of time (apples in Washington state are stored using SmartFresh for more than a year with only one application). In ambient temperature, eventually new ethylene receptors are developed and ripening continues normally. The product is highly efficacious at extremely low dosages, and so volatile that it breaks apart within hours of it's use, leaving no residue. It is harmless to fruit, vegetables, humans, babies, water, fish and the environment. SmartFresh has over 400 registrations globally, including the Environmental Protection Agency (EPA), U.S. and the European Union. 

Benefits of using SmartFresh:

  • Higher marketing flexibility, less pressure to sell the fruit and larger marketing window of more consistent product quality during the entire sales season
  • Increased pack-out yield
  • Reduced fruit waste
  • Better quality for hard-to-store, quick softening varieties
  • Better firmness maintenance for highly ethylene sensitive fruits (like plums, persimmons, but also local heritage apple varieties)
  • For exports and long-distance transportation, better quality at port of arrival, better resistance to breaks in the cool chain or unforeseen delays in the supply chain.

Importantly, every type of produce has it's own optimal storage conditions dependent on its physiology, the variety in question, SmartFresh dosage, oxygen and carbon dioxide levels in controlled atmosphere or shipping container, stage in ripening process and temperature - this is where AgroFresh comes in. Using historical R&D and product knowledge the company advises customers on how to store and ship various types of produce and apply SmartFresh. AgroFresh technical people and salesforce answer questions such as- "I'm seeing a new rot or spot haven’t seen before. Can you help me identify this?," "I've got a new variety of pears. How much ethylene do these release and how would you suggest we apply SmartFresh," and "If we apply SmartFresh to this product at this stage of the ripening process what sort of result should we expect?" Fruits that work best are ones with a short window of harvesting. SmartFresh works great in tomatoes but tomatoes are harvested continuously throughout the year and there's no need for storage. Apples are harvested once per year and it works perfectly. While apples have historically been the company's main focus, I am told bananas and pears are a big part of the story going forward.

To get a sense for why the company historically focused on apples, one need not look past the unit economics in the apple business. It is the easiest SmartFresh sale across the produce spectrum. At the time the customer (grower, packhouse or importer/exporter) makes a SmartFresh buying decision, it is important to look at how much contribution margin is remaining in his produce relative to the cost of smartfresh. Let's take a 40lb box of 100 apples for example. At the time the buyer makes the SmartFresh application decision, they're looking at getting $20 for the box and need to put another $6 into them by time they can sell those apples. So the box of apples represents $14 of contribution margin. In the case of apples, one is often going to store those apples up to 13 months. At a SmartFresh cost of roughly half a penny per apple that’s 50 cents per box. So customers are spending $0.50 to protect $14 of apples. Customers told me they are not only protect their apples but making them better (crunchier, tastier apples) and the storage ability allows them to sell the apples throughout the year as opposed to all at once when they are harvested. In red delicious they saw a $2/box demand shift. In gala apples that demand shift was $5-6/box. The purchase decision here is a no brainer, while for other types of produce it can be more difficult. This is where future acquisitions could prove valuable. By acquiring other companies involved in the post-harvest fruit and vegetable space the company can more easily penetrate into other fruits and vegetables in which their products have efficacy. In speaking to former AgroFresh senior managment I was told the product works phenomenally in tomatoes, broccoli, avocadoes, cantalopes, plums, kiwifruit, pears, bananas etc. This was reiterated by employees in several US packhouses, though they noted they personally disliked putting SmartFresh in shipping boxes as it slowed down their line. They noted however they often have no choice as it is frequently requested by Walmart and other retailers. 

Most of the company's growth in recent years has come from increased international penetration of SmartFresh, with substantial runway remaining in Europe at only 26% penetration in apples stored beyond 30 days vs the US at 88%. The variability in penetration rates is due to the pace of registrations- the product was first approved in Chile and the United States in 2002. In Europe their penetration is lower because products weren't approved until recently - 2009/2010. While Europe is a larger opportunity than the US it is also more fragmented and requires registrations on a country by country basis. Also, I am told SmartFresh recently was removed from a perceived bad list in Europe which should help sales. Interestingly, the company expects approval of organic designation in the US in 6-9 months. This will expand their opportunity set in higher priced produce. Additionally, the Head of sales for AgroFresh in Canada tells me they have targeted 3 new areas of focus - Broccoli, Avocado and one other opportunity which he was unable to disclose due to an NDA with their partner. 

In addition to SmartFresh, the company has launched a new pre-harvest offering called Harvista- sales of which have been growing nicely (estimated '15 sales of $15mm). In speaking to one of the largest apple growers in the US I am told they love SmartFresh, and have started using Harvista as well. The grower said their own labor force is very good and well-managed, but for other growers who arn't in the same position, Harvista allows them to extend the picking season, reducing the amount of fruit that falls off the tree and goes bad. In addition, the fruit grows larger until it is picked. 60% of packhouses are also growers, so most of the time sales of Harvista will be to existing AgroFresh customers and sales contacts, providing the salesforce layup cross-selling opportunities with existing customers. Additional growth opportunities include RipeLock for use in bananas, AdvanStore and Ethylbloc for use in flowers. Continued penetration in international markets and produce categories along with the aforementioned opportunities offer interesting long term optionality. 

While the company has yet to formally detail their capital allocation plans, I am told they are likely to focus on growing the platform by rolling up high quality competitors in the niche fruit and vegetable post-harvest space, enabling them to provide and bundle additional product offerings such as fungicides, soaps and waxes to existing customers, while also selling SmartFresh to new customers. While the company has the ability to raise prices, they are more interested in maintaining their excellent customer relationships and selling them additional products over time. Upcoming catalysts include the release of proxy materials detailing historical financials this coming Friday. The following week the company will go on the road to see investors until the end of May. Deal close is expected in mid to late July. 

Link to Slide Deck:


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Release of proxy materials. Corporate roadshow. Deal close. Organic designation. Sell-side initiations. Beat/raise. Additional acquisitions. 

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