August 23, 2020 - 4:13pm EST by
2020 2021
Price: 7.17 EPS 0 1.00
Shares Out. (in M): 35 P/E 0 7.2
Market Cap (in $M): 254 P/FCF 0 6.5
Net Debt (in $M): 85 EBIT 0 0
TEV ($): 339 TEV/EBIT 0 6.4

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-          Whole Earth Brands (FREE) is an asset-light, branded packaged food (non-sugar sweeteners) and ingredients (primarily licorice derivatives) business primarily focused on the “better-for-you” segment, trading at ~5.2x 2021 EBITDA, roughly half of where peer group food/ingredients companies trade.

-          “Busted” SPAC with many shareholder friendly adjustments made prior to deal completion:

o   Price lowered twice leading up to the deal.

o   Ron Perelman was the seller of the business to the SPAC.  While not a “forced” seller per se, recent press articles indicate that he is a motivated seller of a number of his holdings.  His entities have been aggressively selling some FREE shares that they purchased during the deal process, and I believe they are almost “cleaned up.”

o   ½ of warrants were redeemed for $0.75, minimizing potential dilution (and stock would have to appreciate 60% just to get back to 11.50 strike of the warrants).

o   2.7mm earn-out shares were eliminated.

o   1mm seller’s shares in escrow were eliminated.

o   Sponsor forfeited 3mm shares outright.

o   Additional 3mm sponsor shares placed in escrow until stock hits $20.

-          Low leverage at roughly 1.3x. 

o   In what is seemingly rare for SPACs these days, the majority of the investors stayed in the deal post close – there is a real float here (perhaps why it traded down and didn’t squeeze up like some recent SPACs).


SPACs are hot, as long as there is next to no float, no FCF, and a sexy story (or no story yet at all, in which case you can buy them for a premium to cash in trust before an announced deal).

But here we have a SPAC that merged with a boring-enough food business – comprised of branded non-sugar sweeteners and ingredients/additives.  The business has been resilient through covid and should have modest organic growth over time (as trends toward health-consciousness/lower sugar continue).  The SPAC sponsor was Irwin Simon, who founded Hain Celestial, and the seller of the businesses to the SPAC was Ron Perelman.

The seller and the SPAC and the key SPAC shareholders (and pipe investors) were all negotiating through the worst of the covid shutdowns to get the deal across the finish line.  Both the sellers (again, Ron Perelman) and the SPAC sponsors (Act II / Irwin Simon) gave significant concessions to complete the deal, to the benefit of continuing shareholders.

Shareholder Friendly De-SPACing Process

The sponsors initially had 7.5mm founder shares (which would have represented 20% of the 37.5mm shares in the SPAC deal).  Of these, 3mm were forfeited in connection with the closing of the business combination, and another 3mm were placed into escrow until the stock reaches $20.  Thus, the sponsor only currently owns 1.5mm common shares outright.

Additionally, at the IPO, the sponsor purchased 6.75mm private placement warrants for $1.00 each, or $6.75mm in aggregate.  At the closing of the business combination, all of these warrants were forfeited and cancelled.

Seller Concessions: Two Price Reductions

When the deal was first announced last December, the purchase price was $575mm (enterprise value), or 8.1x adjusted pro forma EBITDA of ~$71mm.

In May, the purchase price was reduced to approximately $516mm.

In June, the purchase price was reduced to $439mm.

And then subsequent to the deal getting done at $439mm, the stock has dropped by ~25%+ from $10 to the low $7s.  (It’s worth noting that the initial $71mm of EBITDA guided to was reduced slightly to a ~$65mm midpoint, and that there are still a lot of adjustments running through the numbers in 2020).  Still the current valuation is 5.2x 2021 EBITDA, and a 15%+ FCF yield to the equity.

The seller also gave up their right to any future governance role (initially they had negotiated for two board seats – they gave both of those up).


Whole Earth Brands (FREE) bought Merisant and Mafco from MacAndrews and Forbes, Ron Perelman’s investment vehicle.  There was significant leverage on this business under Perelman’s ownership (~$350mm of debt – more than the current EV).


Merisant was founded in 2000, but its roots trace back a few decades before that.  Perelman/Mafco acquired Merisant in 2014 from Wayzata (a PE firm focusing on distressed assets).

Merisant is a non-sugar sweeter business whose primary brands include Equal (best known for the little blue packets), Canderel (in France), Whole Earth (US natural product – Stevia/Monk Fruit), and Pure Via (French/UK brand of the natural product).  Equal was the number one brand in artificial sweeteners for decades, but its lead eroded over the last 15 years (the company now believes it is in the 4th spot in the US).  Nutra Sweet also compete in that space.  Canderel remains the #1 brand in France, UK, and South Africa (and Equal remains #1 in Australia).

The former CEO of Merisant from 2004-2014 gives some history of his time at Merisant on his LinkedIn page:

Recruited by private equity firm, Pegasus Capital Advisors, LLC, to turnaround, transform and innovate products for this $300MM global portion pack sweetener company – makers of Equal®, Canderel® and branded sweeteners. Created strategic blueprint to drive a lean global operating model that increased operating performance and reduced costs by over $45MM in 10 years. Created and Launched Pure Via® under Whole Earth Sweetener Company® Achieve GRAS status for Stevia REB A along with FDA "no objection". Created Pure Via® brand and partnership with PepsiCo now generating over $50MM in annual sales. Post restructuring, working with Wayzata Capital Partners, eliminated all debt, increased EBITDA 20% and sold the enterprise for over 7X EBITDA which generated a 35%IRR.

Apparently the business had ~$600mm of debt on it at Pegasus, and so the former CEO took it into, through, and out of bankruptcy. 


Mafco is a natural licorice extract business that traces its roots back over 170 years.  According to the company’s website, in 1850, Edward MacAndrews and William Forbes started the business in Turkey to sell licorice root and licorice extract globally.  

Mafco sells into a variety of end markets, including tobacco (licorice extract has been in Marlboro cigarettes for over 100 years), as well as food and other CPG products, through its branded MagnaSweet product.  The company recently signed a new 10-year contract with Altria in 2019, their largest customer.

Whole Earth Brands (Merisant + Mafco)

Here is the overall company sales breakdown (note a large global presence – dollar weakness would benefit the company all else equal):


Every major segment of the company is growing except the European tobacco end market (roughly 1/4 of the Mafco business, or 1/10 of FREE overall).

-          North American Sweeteners grew +3% in 2019, driven by robust growth in the Natural brands (Whole Earth), product extensions in Equal (flavors such as French Vanilla or Pumpkin Spice, Equal with Zinc and other vitamins, etc), and growth of distribution for Whole Earth.

-          Western Europe Sweeteners is seeing single digit growth in Canderel and double digit growth in Pure Via.

-          Rest of World Sweeteners has averaged 6% volume growth CAGRs over the last three years.

-          The small part of the business in Adjacencies (~$5mm of sales) is growing rapidly.  Product extensions such as chocolate bars (Canderel recently launched in French grocery stores), jams, and granola, etc.

-          Overall Branded CPG (ie, Merisant) grew 4.3% in 2Q 2020 (+6.6% constant currency).  Growth in e-comm and retail more than offset the decline in foodservice, which is roughly 15% of the business (Starbucks, etc).

-          Mafco Extracts business is stable in NA tobacco.  Smokeless tobacco is growing LSD, and European confection (MagnaSweet) is growing.  Mafco lost a large European tobacco customer last year, which hit sales by $7mm last year hit it by ~$7mm again this year (in 1H).  2Q sales were down 14.2%, but this should stabilize in the back half as the loss of the European customer is lapped.

-          The Mafco Derivatives business (which sells into Consumer Health OTC, Packaged Food, and CPG – think Flintstones Vitamins, gummies, Beauty and Personal Care products, etc) is growing.

The company provides good segment-level commentary on all of the brands in their deck and makes a reasonable argument for why mid-single digit organic growth is possible.  (See pages 39 and 40 in the June deck).

Overall, the company is guiding to a mid-single digit organic growth rate, driven by product/category innovation, mix shift from legacy Equal/Canderel to Whole Earth/Pure Via, distribution growth, and growth in other geographies.

The SPAC sponsors claim that there are some interesting synergies that Irwin Simon and his team bring to the table.  Time will tell.



Free’s 2Q EBITDA margin was 17% (on gross margins of ~40%), though on a “pro forma adjusted” basis the company claims industry-leading EBITDA margins of 23%+ (there are still a lot of adjustments to the #s in 2020, so time will tell here).  Here is the peer group margin comparison from the roadshow deck. 



After the two price reductions in May and June before the deal closed, and another 25%+ sell-off in the shares following the de-SPACing, the market cap of the company is just ~$255mm.  Add in net debt of $85mm, and the current Enterprise Value of the company is $340mm.  The company is guiding to pro forma adjusted EBITDA of ~$65mm (a reasonable starting point for estimating 2021 EBITDA, though the clean 2020 number is lower).  So here we have an asset-light, branded food business with a secular tailwind in the “healthier” part of the food market that is trading for 5.2x 2021 EBITDA. 

The current valuation is implying the business is in severe secular decline.

The business does not require much capex (2017-2019 actuals: 6-8mm, though they are pulling forward a large project into the back half of 2020, which will put capex this year at almost twice the normal level), and interest expense on the $140mm of gross debt is $6-7mm.

To get to FCF for 2021 we start with $65mm of EBITDA and then reduce that by ~$15mm for capex and interest and $10mm for cash taxes.  Ex working capital swings, we think ~$10mm per quarter of FCF is a reasonable estimate of the earnings power of the business.  That is over $1/sh per year on a $7.17 stock, a 15%+ FCF yield.

A 10% FCF yield would imply ~$11.50/sh today.  An 8% yield: ~$14/sh.

Every SPAC has a slide in its deck like this, and I don’t remember ever seeing one of these charts where the SPAC target wasn’t the cheapest of the peers and with the highest returns, etc.  So of course we should take this with a grain of salt.  But I think that for the most part the peers seem reasonable (ex market darling MKC, perhaps).  Even if we pick the worst peer in CPG and the worst peer in Ingredients, we’re still talking a 9x EBITDA blended comparable.  That would imply $14/sh for FREE, a double for the stock.  (Note the FREE valuation shown below is based on $10/sh.)

Other packaged food companies like CAG, K, CPB, and GIS (which aren’t exactly known for their long-term growth prospects) trade at an average of 13x EBITDA, with the lowest at 11.5x.  Hain Celestial trades at 17x NTM EBITDA and a 3.3% FCF Yield.  Nomad Foods trades at 11x EBITDA and an 8-9% FCF yield.

Given the quality, growth, margin profile, and asset light nature of FREE, we believe that 9x EBITDA (which implies an 8% FCF yield, and a $14+ stock) is perfectly reasonable.

LBO Model

It is instructive to look at a LBO or leveraged recap model for this business (though to be clear, we don’t expect this to occur, nor would we recommend it).  If the company levered up to 3.5x EBITDA to repurchase shares at the current share price, the share count would fall from the current 35.4mm to ~16mm, and even assuming interest expense increased from the current 4.5% to 7.5%, FCF/sh would increase by over 75%, to close to $2/sh.

Again, this isn’t going to happen.  But it does demonstrate the accretive nature of buybacks at these prices.

If FREE used even its $50mm of FCF over the next six quarters to buy back stock at the current price (without increasing leverage at all), then the market cap would fall to ~$205mm (still assuming the stock is at the current $7.17/sh), and the FCF yield looking forward to 2022 (still assuming no growth in the business) would be 19%+.

One final sanity check here is that the initial price that ACT II (and Irwin Simon) agreed to pay for the business in December 2019 (a more normal environment before Covid hit) was $575mm (Enterprise Value).  If we roll forward to the YE 2021 balance sheet all else equal, that same $575mm of EV would imply a ~$15+ stock.

Just to highlight how cheap this stock is, if the stock stayed at ~$7.17/sh for the next 3.5 years (through 2023), and the company used FCF (of $40mm/yr, assuming no growth) to repurchase shares at this price, the company would generate $2.20/sh in 2024 (a 31% yield on the current stock price, without adding any debt).  Looked at slightly differently, the company will generate its current market cap in FCF in the next 6-7 years, which would allow investors to then own the business for the ensuing decades for “free.”

Bottom line, we see 50-100%+ upside, with at least some possibility that the re-rating takes place in a short time period as overhangs are removed and catalysts play out.

Overhangs Lifting and Additional Catalysts

Surprisingly, very few shares in the SPAC asked for their ~$10 cash in trust back.  Over 90% of the shares in the deal (and thus the cash in the trust) stayed in.  This tells us that there were/are real shareholders that liked the deal at $10, either as a long-term hold, or because they thought they were going to get a quick pop (perhaps some retail/Robinhood types were in for those sweet, sweet, “guaranteed” SPAC profits.)

Ron Perelman has seemingly been an aggressive seller of FREE regardless of price.  Entities related to Perelman owned 3.3mm shares or ~9% of FREE as of the first set of 13G filings post the deal (6/18/2020), but they have been selling fairly aggressively. (Note these shares were purchased in the open market and were not part of the deal consideration, so there is no lockup – yes, a bit of a strange fact pattern – maybe he was playing for a quick pop as well.)  As of 7/23/2020, the Perelman entity was down to 1.86mm shares (therefore it averaged selling ~60k shares per day).  Assuming it is interested in selling this entire position, and it continued selling at that rate of 60k shares per day (~15% of the daily volume which seems plausible), it would be done selling by the first week of September.  This overhang could be lifted soon.

Additional potential catalysts include the company starting to get out on the (digital, I guess) road to tell its story more broadly, and the potential for sell side initiations.

The company also seeks to supplement organic growth with tuck-in M&A, although at these prices, it is considering implementing a share repurchase program.  As the company stated on its 2Q conference call:

“As we continue to evaluate and prioritize various alternatives aimed at delivering the highest returns to our shareholders' capital, we are considering various alternatives, including, but not limited to, a share repurchase program. Our overall evaluation is driven by our belief that our stock is undervalued, and we are trading at a deep discount to our peers.” – Andy Rusie, CFO

“In regards to the share repurchase, I think what Andy has said before, listen, we're trading pretty cheap today. And I always said this here, and I said that at Hain, it's better to buy my own stock sometimes because I know what I have in the company than go out doing acquisitions. And we'll weigh the options there, what makes sense in regards to that and using our balance sheet. And we do have a very, very, very strong balance sheet today. So we do have options in regards to which method we're going to go here.” – Irwin Simon, Chairman

 Risks / Open Questions

- Why didn’t these brands sell to a strategic buyer?  Especially since it seems like Perelman didn’t really want to roll any equity.  Perhaps it was the ability to sell both CPG and Ingredients business in one fell swoop – maybe a branded food company would not want the ingredients piece.

- The company estimates 1.75mm of public company expenses in 2020 (half year) and 3.5mm in 2021 (full year), prior to offsetting cost-cutting/synergies.  There are also still a number of adjustments in the 2020 adjusted EBITDA (~$10mm worth, taking the $65mm to a cleaner $55mm), but those should fall off dramatically next year, making $65mm a reasonable clean base for 2021 (prior to growth).  Still, as a newly public company via SPAC, there could be some noise in the reported numbers for a few quarters.



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


-          Overhang lifted/non-economic selling ceases (by the Perelman entity and perhaps other funds/retail investors that had been playing for a pop on the conversion).

-          Company starts to tell story and/or gets sell-side coverage.

-          Share buybacks.

-          M&A.



We have no obligation to update the information contained herein and may buy, cover, or sell shares at any time for any reason. We make no representation or warranties as to the accuracy, completeness or timeliness of the information contained in this presentation. We expressly disclaim all liability for errors or omissions in, or the misuse or misinterpretation of, any information contained in this presentation.  This does not constitute an advertisement or an offer to sell or a solicitation of an offer to buy any securities.

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