Delicious Brands Bucks Market; Completes IPO

DES PLAINES, IL—In a low-profile deal that took many in the industry and Wall Street by surprise, cookie maker Delicious Brands (DBSI), formerly The Delicious Frookie Co., on Nov. 12 quietly went public at $12/share. It was the first IPO in the natural products industry or in the food industry to be executed since the August stock-market downturn.

Delicious Brands, now trading on the Nasdaq SmallCap exchange, offered 1 million shares in the IPO and raised about $12 million. There were no selling shareholders.

The company originally filed to enter the public markets in April with a valuation that was expected to raise about $17.2 million.

“We had originally planned to go public around July,” says President and CEO Michael Kirby. “You know what happened then.”

Proceeds from the current offering will be used to pay off debt incurred with the company’s acquisition of the Des Plaines, IL-based conventional cookie and cracker company Salerno Foods and to bring trade payables more current, according to Kirby.

Executing the deal in the current market’s anti-small-cap IPO environment required Delicious to exchange its original lead underwriter, New York-based Gaines Berland Inc., for Network 1 Financial Securities Inc., which led an underwriter group that included United Bank of Switzerland, one of the largest investment houses in the world.

“We needed to change underwriters because small-cap stocks weren’t really Gaines Berland’s specialty,” Kirby says.

Network 1 also is the largest stockholder in the newly public company, according to Kirby.

Even after the IPO, Kirby admits Delicious Brands doesn’t have a particularly attractive balance sheet. DBSI’s 1997 sales, the most recent numbers available, totaled about $30.7 million, or pro forma sales of $70 million when combined with the sales of Salerno Foods, and the company had a net loss for the year of about $3.4 million.

With 4.3 million shares outstanding, Delicious’ market capitalization totals about $50 million or about .75 times sales. Most stocks in the “healthy living” category trade at between two and five times sales, and most cookie companies at two to three times sales.

But Kirby hopes those multiples eventually will apply to Delicious Brands. Known for his turnaround expertise, Kirby was part of a team that took Interstate Bakeries, producer of Dolly Madison and Wonder Bread brands and one of the largest fresh bakers in the country, from a $30 million company to a $600 million company in four years.

“We’re coming out as a turnaround,” Kirby says. “We’ve got to demonstrate we can participate in these categories and grow. When we do, we’ll come up to those multiples.”