Earlier this month, a report that the metalhead-approved canned water maker Liquid Death had hired Goldman Sachs to lead a possible IPO sent some heavy reverb through the financial and CPG worlds.
It’s not that the news was particularly shocking – the brand’s CEO Mike Cessario had been discussing an IPO as a serious possibility for the company since it announced a $700 million valuation alongside its $70 million Series D in October. But the report by The Information now suggests that going public could come sooner rather than later for the self-proclaimed thirst murderers, with spring 2024 cited as a possible date should they commit. The company hasn’t publicly discussed the report.
While Liquid Death has shown itself to be one of the fastest growing and most unique beverage launches of recent years, which suggests confidence that the brand could thrive as a public company, there are still the big questions around the motivation and timing of a potential IPO.
One possibility is simply that Liquid Death, with its capital-intensive expansion strategy, only has two options if it wants to reach an exit. The brand has raised around $200.6 million to date, with around $145 million over two funding rounds in 2022 alone. According to Jim Watson, senior analyst for beverages at Rabobank, the heavy capital investments in the brand have effectively brought it to a crossroads – either go public or find a strategic buyer.
There is an unlikely third option – a new, long term investor could buy out their current shareholders and the business could remain independent. But that would be a choice that runs counter to the growth narrative that Liquid Death has been telling for the past few years.
An IPO, however, would allow the company to go to the next level and maintain control of arguably its most important asset: its uniquely irreverent, boundary-pushing brand identity.
“If you are Liquid Death, you’d have to ask ‘The moment we go to a Coke or a Pepsi or a KDP, are we sellouts?,” asked Watson. “Have we lost the inherent right with consumers to own the imagery that we’ve built up so far? Because now we’re part of the giants who make all the products that we make fun of and who act in the way that we put down?’ I think you have to worry about losing some of your consumer base there.”
The knife cuts both ways: While mainstream sensibilities have evolved to allow for more shocking imagery and humor, would a Coke or a Pepsi necessarily want to align its carefully cultivated image with a brand producing a collectible Travis Barker signature enema kit? It’s not impossible – both soda giants have partnered with aggressively branded energy drinks in their history – but considering how the culture wars have rocked even the biggest beverage institutions in recent months, potential buyers may be extra cautious.
Some observers even wondered, by working with Goldman Sachs, if Liquid Death could be dual-tracking an IPO exploration as well as looking at M&A opportunities. Business journalist Dan Frommer speculated whether the report on the IPO exploration might put pressure on potential buyers to bite.
“My first thought was that this was a leak aimed directly at the Corp Dev departments of every major beverage and CPG conglomerate: Get moving!” Frommer wrote in his newsletter The New Consumer. “An acquisition is usually the most likely result for fast-growing beverage brands with obvious upside potential. Does anyone actually want to run a public company?”
But, as Frommer noted, Cessario has often compared Liquid Death to Red Bull, and he suggested the company comes across as “a sneakily ambitious brand that has more to accomplish, and perhaps that’s only possible when you’re independent and liquid.”
Watson also pointed to Red Bull as a model Liquid Death could follow if it remains independent – whether as a public or private company – noting the energy drink maker has thrived and maintained growth in large part thanks to its unusual marketing and brand identity.
The State of the Market
But life as a public company poses its own challenges, and in the past year there’s been a lull in CPG brands taking the IPO route after a rush of brands hopping in during a hot market in 2021 and the collapse of the SPAC trend.
Over recent months the handful of consumer IPOs that have occurred have mainly been foodservice and retail plays, rather than CPG, such as fast casual restaurant Cava and Savers Value Village, noted Ben Settle, managing director at Guggenheim Partners.
“Volatility is down and people are viewing that as a window opening up,” Settle said. “Whenever there’s a gap in IPOs occurring you need a really compelling business to go first, and everyone’s watching that as the canary in the coal mine.”
But these slowdowns in the market are cyclical, he noted.
Is The Data in Their Favor?
When looking at recent food and beverage IPOs, results have varied. Oatly came to the market with a hyper growth narrative that led to a strong stock performance out of the gate, but its valuation has dwindled following sustained manufacturing issues and questions about its environmental sustainability narrative. However, The Vita Coco Company, a brand that has tended to show continuous, steady growth over several decades, has seen its stock value rise significantly in recent months.
Liquid Death is currently in a rapid growth period. The brand launched in 2019 and surpassed around $130 million in revenue in 2022, and said in October that it would double that this year. As of last fall, the brand had 94% national distribution coverage via DSD and broadline with capacity to service up to 346,000 doors. According to board member Peter Pham, the products were only in about 60,000 accounts, leaving a lot of runway ahead.
An internal deck used in Liquid Death’s Series D raise last year showed that the company was at the time unprofitable, with razor- thin gross margins, but as it transitions much of its manufacturing from Austria to the U.S. this year, the company estimated gross profit to go from 11% in 2022 to a projected 47% in 2024-25, directly inverting its ocean freight expenses from 47% of each can sold to 11%, while also achieving EBITDA positivity next year.
And its investors appear bullish. Speaking to Forbes this spring, Mark Rampolla, a board member and partner at Liquid Death investor Powerplant Ventures, said he believed the brand’s current retail performance has proved its ability to drive growth.
“What we liked from the beginning: the data on Whole Foods and 7-Eleven,” Rampolla told Forbes. “I’ve never seen a brand perform equally well in both of those chains out of the gate. It’s so abnormal. I can’t think of another brand I’ve ever seen.””
Looking ahead, Liquid Death’s ability to innovate and prove it can duplicate its success in water with new categories – such as its iced tea line – will also be important should the brand go the IPO route.
According to Settle, providing proof for the narrative is always vital for any IPO, particularly in a space like CPG.
“You have to create an understandable growth story that has multiple facets that can drive long-term revenue growth,” he said.