HelloFresh, a popular food delivery company, is facing some challenges that could potentially make it an attractive candidate for a buyout. The company’s shares experienced a significant drop of 24% after it revised its revenue growth guidance for 2023. HelloFresh now expects growth of 2%-5%, down from its previous estimate of 2%-8%. The decline in guidance is primarily due to water supply problems at one of its meal-prep sites and a slowdown in new customer acquisitions in the United States.
CEO Dominik Richter believes that these issues are temporary and not indicative of the company’s overall performance. Despite the lowered guidance, HelloFresh remains profitable and continues to experience growth. Interestingly, its valuation, which includes debt, is currently at 0.4 times sales. This is comparatively lower than its lossmaking peers, such as Just Eat Takeaway and Delivery Hero.
If a buyout group were to pay a 30% premium to HelloFresh’s market value, the enterprise value would be around 3.6 billion euros. Assuming the company’s top line continues to grow at a rate of 5% annually and its margin sees a modest increase to 8%, the estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) by 2028 would reach 800 million euros. If the buyer were to exit the investment at an 8.5 times multiple, the group’s value would be around 6.9 billion euros. This would result in an internal rate of return of approximately 20% for the acquirer.
These calculations, provided by Breakingviews, are based on the assumption that the buyout group would borrow three times the EBITDA. This potential return on investment makes HelloFresh an enticing prospect for a buyout group.
The challenges faced by HelloFresh, including the water supply problems and the slowdown in new customer acquisitions, are seen by CEO Dominik Richter as isolated incidents. However, these challenges have had a significant impact on the company’s revenue growth guidance for 2023. Despite the drop in share value, HelloFresh remains profitable and is valued lower than its competitors, which could make it an attractive candidate for a buyout. The potential return on investment for a buyout group, based on growth projections and market multiples, makes HelloFresh an intriguing opportunity.
More detail via Reuters here… ( Image via Reuters )