California-based cannabis supply distributor Hydrofarm has filed a preliminary prospectus for up to a $100 million IPO. The company intends to list on the NASDAQ with the trading symbol HYFM. Named underwriters include J.P. Morgan, Stifel, Deutsche Bank Securities, Truist Securities and William Blair.
Hydrofarm operates across Canada and the U.S., serving over 2000 wholesale customers with 2 Canadian and 6 American distribution centers. It sells a range of products that include lighting, cultivation equipment, grow media, nutrients and supplies. The vast majority of its customers are specialty hydroponic retailers.
In the first three quarters of 2020, the company increased its revenue 40% to $254.8 million compared to the first three quarters of 2019, with about 83% of revenue generated in the U.S. Gross margin during the first three quarters was 18.7%, and the company reported an operating profit of $10.7 million.
The company is led by CEO Bill Toler, who was named to the position in 2019 after retiring as CEO of Hostess Brands in 2018. President Terence Fitch, who also joined the company in 2019, worked in a variety of roles at Coca Cola from 1994 before leaving in 2013 to launch a function beverage startup, where he served as CEO. CFO B. John Lindeman joined in March, serving previously as CFO of publicly traded avocado grower Calavo.
In 2017, the company was acquired by a group of private equity investors, including Serruya Private Equity, Hawthorn Equity Partners Inc. and affiliates of Broadband Capital Investments, LLC. One of the directors, Patrick Chung, works with the Serruyas, who are among the largest shareholders, with 30% of the company prior to the IPO. Former CEO Peter Wardenburg, who left the Board of Directors earlier this week, owns 11% of the company as well:
According to the preliminary prospectus, which provided no detail about the expected pricing range, the proceeds of the IPO will be used to reduce debt, fund acquisitions, increase working capital and pay for general corporate purposes. The company intends to repay a term loan facility that matures in 2022 and bears interest of LIBOR plus 850 basis points and another credit facility that matures in 2022 as well. As of September 30th, the company had $113 million in long-term debt and cash in excess of $32 million.
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