Truett-Hurst finalizes IPO, stock begins trading Thursday
Published: Wednesday, June 19, 2013 at 5:03 p.m.
Last Modified: Thursday, June 20, 2013 at 10:16 a.m.
Following several delays, Healdsburg wine company Truett-Hurst made its debut on Wall Street Thursday when its stock began trading on the Nasdaq exchange.
The company priced 2.7 million shares of common stock Wednesday at $6 per share — a fraction of the value it first sought when the winery announced its initial public offering in April. Its shares will trade under the symbol “THST.”
In its market debut, the company opened at $5.94 a share and ended the trading day at $5.67 a share.
Truett-Hurst intends to use the proceeds from the offering to pay down debts, for capital expenditures, and to hire additional workers, the company said in a statement Wednesday.
Phil Hurst, CEO of Truett-Hurst, declined to comment, citing the quiet period that companies observe as they begin trading.
Some wine industry executives had been quietly questioning whether the IPO would ever happen. But many were hopeful that Truett-Hurst would overcome its obstacles and become the first North Coast winery to go public in 13 years.
“Every wine company in Napa and Sonoma is rooting for them to be able to raise their funds,” said Mario Zepponi, co-owner and partner at Zepponi & Co., a wine industry mergers and acquisitions firm. “It would be an endorsement of the wine industry by Wall Street, and it would make it easier for other wine companies to acquire capital.”
Truett-Hurst partner Bill Hambrecht, an investment banker who helped Ravenswood Winery go public in 1999, was the architect of the IPO. The offering was led by W.R. Hambrecht + Co. using its Open-IPO process, which allows individual and institutional investors to bid on shares in an auction.
When Truett-Hurst announced its intention to go public in early April, executives originally sought to price its shares at $11 to $15. But the company lowered its target price several times over the last two months while meeting with potential investors.
The company is growing fast but is young and small, with a short track record and an unusual business model that can give investors pause, analysts and industry experts said. Disclosures about the company's level of debt may have been a red flag for some investors, they said.
According to public filings, Truett-Hurst expects to raise $16.2 million in the IPO and spend 25 to 35 percent of those proceeds to pay off debts. Its inventories, valued at $11.8 million, almost match its liabilities, which are about $11.3 million, according to public filings. That leaves little financial wiggle room if the company loses a key account.
“Those are red flags in any offering,” said one investment banker with knowledge of the company, who spoke on condition of anonymity to protect relationships with the winery's management. “Investors like to see companies selling shares to reinvest. They don't like to see repayment of debt.”
Cutting the share price also can suggest weakness, the banker continued.
“The fact that they cut it so much suggests desperation in the air to get it done,” the banker said.
Truett-Hurst reported $12.6 million in sales for the fiscal year ending June 30, 2012, up from $5.4 million the previous year. It posted a profit of $26,462 last year, compared to a loss of $820,815 the previous year.
The company generates about 75 percent of its sales from custom labels produced for Trader Joe's, Safeway and Total Wine & More. Producing private labels leaves little opportunity for branding, another possible turnoff for investors, sources said. It also sells wine under its Truett-Hurst, VML, Healdsburg Ranches and Bradford Mountain labels.
After the offering, executives and directors of the company will hold nearly 60 percent of the stock, according to Truett-Hurst's most recent filing with the U.S. Securities and Exchange Commission.
Originally, Truett-Hurst executives were planning to sell 652,557 shares of their personal stock in conjunction with the company's IPO, while retaining the majority of the voting power. The executives are no longer planning to sell their shares during the IPO, but they still plan to retain the majority of the voting power in the company, according to the most recent filing.
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