The past year has not been the most active for UK IPO activity, but Applied Nutrition’s London listing has shown that investor appetite for high-quality companies is as healthy as ever, says Nicholas Neveling.
Good businesses will always receive solid support from investors – largely irrespective of the wider macroeconomic backdrop. So it proved for sports nutrition supplements manufacturer Applied Nutrition, which successfully listed on the London Stock Exchange (LSE) at the end of October 2024, raising £157.5m in an IPO that valued the Liverpool-based company at around £350m.
Applied Nutrition was founded only 10 years ago by current chief executive Tom Ryder and brightened up what has otherwise been a challenging period for IPO activity globally, but particularly the London bourse. EY analysis shows that last year 18 companies, with a combined IPO value of £3.4bn, listed in the UK. As 2024 drew to a close, the 88 exits from the LSE through the course of the year (including delistings and transfers of primary listings to other exchanges) were outpacing IPOs by a significant margin.
Slow IPO activity is not down to lack of investor willingness to get behind candidates for listings, but rather a combination of macro-factors – including pre-election jitters in the US and UK and lingering uncertainty around financing costs as the interest rate cycle peaked – prompting potential issuers to sit tight.
Indeed, headline IPO numbers do not reflect the fact that the LSE continues to provide deep pools of liquidity – IPOs have been down, but the market has delivered large sums of follow-on capital to businesses through the year.
So given the poor appetite for new listings, why did Applied Nutrition go down the IPO route? The company’s chief financial officer, Joe Pollard, says they did explore trade sale and private equity options, but a public listing emerged as the best fit.
“We had received a number of approaches from private equity firms and trade buyers,” he says. “We didn’t want to go down the trade sale route simply because we believe so much in the growth of the business. If we sold to trade now, we just wouldn’t see the benefit of that upside. And with private equity you can benefit from the upside, but we didn’t want to disrupt the culture of the business and how we work as an executive team. We also wanted to think longer term and not have to orchestrate another exit in three to five years.”
The company’s IPO ambitions started to come together in earnest towards the end of Q1 2024. The business announced its intention to float at the end of September and launched the IPO on 24 October.
As a cash generative company with no debt and a strong balance sheet, Applied Nutrition’s priority was to provide a liquidity event for its key shareholder, JD Sports, as well as give management a chance to crystallise some value, but retain exposure to the future upside.
The company is very cash-generative. Money raised was to realise value for shareholders
“This is a company that is very, very cash generative. It didn’t have any debt facilities prior to the IPO and it didn’t need to raise any new money, not even to fuel investment in new markets,” says Roger Hart, corporate partner and head of the Manchester office at law firm Addleshaw Goddard, who advised on the listing. “The company didn’t actually raise any new money on the IPO. The money raised was all to realise value for shareholders.”
As a consumer-facing company, the credibility offered by a public listing is another plus: “If you’re listed on the stock exchange in London, you are in a different league. Our brand is all about trust, and our ambition is to be the world’s most trusted and innovative sports nutrition, health and wellness brand. Being a plc really helps with that,” Pollard says.
Essential advice
Given the direct importance of the project for the management team and the brand, choosing the right advisers, able to support the business at a local level in the North West, was key.
“It was important for us to pick advisers we connected with as individuals,” Pollard says. “I’ve spent much of my career as an adviser and have learned that this helps because inevitably there are going to be late nights and differences of opinion so, ultimately, you’ve got to like the people you work with to come through those moments. Wherever we could, we also tried to pick advisers from the North West. We wanted to have as many of our key advisers close to us.”
Hart adds: “The business was very clear that they wanted a North West law firm, and the fact that we are the leading law firm in the region – especially for advising listed companies – and have a strong Manchester office, was why we were chosen.”
Once a bench of advisers had been appointed, focus moved firmly on to making sure the company would be market ready for the IPO before the end of the year.
Pollard says that on the whole, the process went relatively smoothly. As a former corporate finance director with Grant Thornton who had worked on a number of transactions, he “had spent a lot of time advising on sales processes before joining Applied Nutrition, so had a reasonable idea about what good looked like in terms of management information”.
The advisers
- Addleshaw Goddard
Legal adviser on Applied Nutrition’s IPO - Deutsche Numis
Sole sponsor, bookrunner and global coordinator for IPO - Pinsent Masons
Legal adviser to Deutsche Numis - Alma Strategic Communications
Financial PR adviser to Applied Nutrition - Proskauer Rose
Legal adviser to Applied Nutrition - MUFG Corporate Markets
Pension adviser to Applied Nutrition - BDO
Applied Nutrition reporting accountant and auditor
Prior to the Applied Nutrition listing Pollard had also led a data warehousing project for the business, predominantly to collect and collate data to support commercial objectives. But this proved to be an investment that also paid off when it came to preparing financials and accounts in the lead up to the float.
“We’ve spent a long time making sure we have great systems and data availability in place,” Pollard says. “This has allowed us to create a data warehouse. We warehouse all our raw data, for every sale of any individual product we have. We knew that we cut that information a certain way to identify trends and insights and report internally, but we also knew that if we ever went into the sales process or IPO, the raw data was available to be cut in any alternative way required.
“We had the infrastructure, explanations and data available to basically say to the BDO team that did our reporting accountant work: ‘There you go. There is the raw data and backup explanations for what happened and why at the time. Once you’ve been able to have a deep dive through that, we can cover off anything else required.”
Setting standards
Applied Nutrition’s data warehouse helped to shoulder the inevitable heavy lifting that comes with preparing a company’s financials ahead of a public listing. But even with this best-in-class data infrastructure in place, the finance team and reporting accountants BDO still had to put in significant amounts of work to switch the company’s accounts from UK GAAP to IFRS accounting standards.
This had no cash impact on the company’s reported revenue and earnings, but did involve a line-by-line review of prior and current accounts to ensure compliance with IFRS standards.
“It was a technical exercise, but it was a chunky piece of work,” Pollard says. “Even though our financial statements actually don’t look that different, you do have to go through a process of going down your entire P&L and balance sheet to identify differences between UK GAAP and IFRS, explain what they are, and make sure you are doing it right in IFRS.”
On the legal front, meanwhile, squaring away all the necessary documentation was also an intensive process, particularly as the IPO was going ahead less than month after the initial announcement of the intention to float. The listing was one of the first following changes to the Listing Rules. Hart says the changes did not materially impact the deal work streams.
“The IPO progressed at some pace,” Hart says, “and that was demanding for all the advisers, especially for us, as the latter stages of an IPO are very, very intense and document heavy for legal teams. We had an 80-person team on this IPO and we were able to marshal that strength of resource to deliver the accelerated timetable.”
Retail appeal
Another key piece of the puzzle was to include a retail segment in the investor base. London IPOs haven’t always been the easiest for retail investors to access. For Applied Nutrition, however, offering its customers the opportunity to invest in the company was important.
“From the outset, we decided we wanted a retail offering,” Pollard says. “We’re a consumer-facing brand and it was important to us to give the people who actually use our products the opportunity to invest. It proved to be a relatively easy thing to do. We partnered with the right advisers, providers and people.”
We partnered with the right advisers, providers and people
The company worked alongside RetailBook – a retail coordinator for IPOs and follow-on offerings that enables individual investors to participate in equity capital market transactions alongside institutions.RetailBook works with retail investment platforms, including AJ Bell, Hargreaves Lansdown and Interactive Investor, that make offers available to their underlying individual customers.
Mike Ward, Retailbook director, capital markets, explains: “In the case of the Applied Nutrition IPO, the company obviously had a certain amount of brand awareness among potential retail investors and they undertook a significant amount of PR work in the public phase of the IPO. The retail investment platforms generally undertake an element of promotion direct to their customer base too, particularly customers who have expressed an interest in IPO investments and have signed up to receive relevant email alerts.”
Interest in the IPO was strong, resulting in an allocation of around £22.1m of shares via the retail offer; this represented just under 15% of the total offer size. Stock market stakeholders hope the successful listing will be a springboard for IPO activity through 2025.
Price is right
Pricing an asset with precision during the past 24 months of interest rate hikes and macroeconomics has felt, at times, like trying to catch a falling knife. However, Applied Nutrition CFO Joe Pollard says that settling on a valuation for the sports nutrition company in the lead-up to its debut on the London Stock Exchange progressed remarkably smoothly – particularly against a still uncertain market backdrop and given the fact that the company didn’t have any directly comparable, like-for-like peers that were already listed to provide guidance on value.
“We definitely took guidance from our lead adviser Deutsche Numis and where we landed in terms of value was within the range they had set right at the outset,” Pollard says.
One thing the business did so well was to take confidence in its long-term growth trajectory and the fact that delivering on this vision would see the market reward the business over time. This meant that rather than trying to blow the lights out with a knockout valuation, the business took a pragmatic view on pricing. The team had a pricing floor, but were happy to progress if investors priced the business within a sensible range.
“Internally, we had a figure below which we would not have been prepared to deal, but if you look at the management team, we retained more shares than we sold. We really believe in the future upside and we were clearly in the deal for much more than just trying to absolutely maximise the immediate price and push the valuation. We asked the market to value us fairly and it did.”
