Blue Apron recently explored combination with Chef’d – source

Provided exclusively by Mergermarket, an Acuris Company

Blue Apron [NYSE:APRN] recently approached El Segundo, California-based Chef’d to discuss an acquisition, according to a source familiar with the matter.

The discussion was only exploratory and never progressed into a serious negotiation, the source said.

Blue Apron viewed Chef’d as an attractive target because its service is different in that it does not require a subscription, and customers can more easily customize their orders, the source said.

On a 10 August earnings call, Blue Apron CEO Matt Salzberg said its roadmap will focus on expanding its offerings to be more flexible, diverse and personalized so it can serve new segments of customers and sell additional products to existing customers. Acquiring Chef’d would have helped it do that, the source said.

After approaching Chef’d, the source said Blue Apron might take a look at another meal-kit delivery provider. The source said a potential logical target is Chicago-based Home Chef, which hired Deutsche Bank to explore a sale earlier this year, according to a May report by this news service.

As a newly minted public company, Blue Apron can use stock as currency in a deal, the source noted.

In addition to diversifying its offerings and growing its lead position in the crowded meal-kit delivery space, an acquisition could be accretive to Blue Apron’s earnings, the source said. But combining two businesses would not be easy and realizing cost savings could take a year or longer, he said.

Blue Apron did not return messages seeking comment. Chef’d declined to comment.

Given the struggles the New York City-based firm has had since its New York Stock Exchange debut on 28 June, the source said he was “surprised” Blue Apron would want to absorb another meal-kit provider.

The company priced its June IPO at USD 10 per share, notching USD 279m in net proceeds – or just a little more than half of the USD 510m it had initially targeted. It is projecting a net loss of as much as USD 129m in 2H17.

Under pressure from Amazon’s [NASDAQ:AMZN] acquisition of Whole Foods [NASDAQ:WFM] for USD 13.7bn, Blue Apron’s shares have been mired in a slump. Blue Apron closed Tuesday at USD 5.17 per share.

Despite cutting back its marketing spend and enacting a hiring freeze, Blue Apron faces the prospect of running out of cash in 12 to 18 months, according to the source and a sector banker. In its prospectus, Blue Apron acknowledged its cash and borrowing capacity may only be sufficient for a year.

In 2Q, the company added USD 114m of liquidity through a combination of a convertible note issuance and extensions to its revolving credit line. Blue Apron reported it had USD 62m in cash and equivalents as of 30 June.

Given its cost-intensive business and challenges in rolling out a new automated fulfillment center in Linden, New Jersey, Blue Apron needs to raise more capital, the source and sector banker agreed.

A follow-on offering is unappealing given the troubled stock performance, they noted.

A private placement in public equity (PIPE) could be a possibility for the firm, the source said. But a private placement could dismay shareholders if Blue Apron were to sell its stock at too steep a discount, he said. Indignant shareholders sued the company earlier this month, alleging it made misleading statements in its IPO prospectus.

A second sector banker said Blue Apron can pull back on growth and get “pretty close” to cash-flow positive. The firm, however, has a history of losses and has said it may never achieve profitability.

“I don’t know what it can do,” the source said. “It’s in a tough spot.”

Adding to the tension, activist hedge fund Jana Partners disclosed in a regulatory filing earlier this month that it acquired a 2% stake in Blue Apron. Jana is the same activist that pushed Whole Foods into a sale to Amazon.

by Troy Hooper in San Francisco, with additional reporting by Tom Cane and Mark Andress

As seen in the mergermarket, an Acuris company, newsletter on 30/08/2017

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