Innovation Beverage Group (IBG) launches its IPO in the United States

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A Quick Look at Innovation Beverage Group Limited

Innovation Beverage Group Limited (IBG) has filed a request to raise an undisclosed amount in connection with an IPO consisting of common shares and warrants, according to an F-1 registration statement.

The The company formulates and markets a variety of alcoholic and non-alcoholic beverages in Australia and the United States.

IBG is a small company whose revenue growth has stagnated.

I will provide a final opinion when we learn more details about management’s IPO.

Presentation of innovative drinks

Based in Seven Hills, Australia, Innovation Beverage was originally founded as Australian Boutique Spirits to develop premium and super premium alcoholic and non-alcoholic brands to sell through distributors and direct to consumers.

Management is led by Managing Director Dean Huge, who has been with the company since February 2022 and was previously Chief Financial Officer of Splash Beverage Group (SBEV) and Chief Financial Officer of Discovery Gold Corporation.

The company’s main offerings include:

  • Bitter

  • light spirits

  • non-alcoholic spirits

Innovation Beverage has recorded an investment at fair market value of $3.9 million as of December 31, 2021 from investors including Samstock SZRT, 114 Assets and others.

Innovation Beverages Customer acquisition

The company sells its products through online e-commerce websites and through offline distribution networks such as Coca-Cola Europacific Partners, Australia’s largest beverage distributor, according to management.

In 2021, the company generated 64% of its revenue from the Australian market and 36% from the US market.

Sales and marketing spend as a percentage of total revenue increased while revenue plateaued, as shown in the numbers below:

Sales and Marketing

Expenses vs income

Period

Percentage

2021

15.3%

2020

4.1%

(Source – SEC)

The sales and marketing effectiveness multiple, defined as the number of incremental new revenue dollars generated for each dollar spent in sales and marketing, was 0.0x during the most recent reporting period. (Source – SEC)

Innovative Drinks Market and Competition

According to a recent market research report by Grand View Research, the North American spirits market was estimated at $154 billion in 2020 and is expected to reach nearly $279 billion by 2028.

This represents a projected CAGR of 7.7% from 2021 to 2028.

The main drivers of this expected growth are an increase in demand for premium products with unique flavors and distinct tastes.

In addition, the graph below shows the historical and projected future growth of the US spirits market:

US spirits market

US spirits market (Grand View Research)

Major competitors or other industry participants include:

  • Angostura bitters

  • of the lyre

  • Seed

  • by Dan Murphy

  • First choice

  • Without Drinks

  • Others

Innovation Beverage Group Limited Financial Performance

The Company’s recent pro forma combined financial results can be summarized as follows:

  • Slight contraction in turnover

  • Increase in gross profit and gross margin

  • Lower operating profit

Below are the relevant financial results (combined pro forma) from the company’s registration statement:

Total income

Period

Total income

% deviation from before

2021

$5,919,405

-0.6%

2020

$5,956,854

Gross profit (loss)

Period

Gross profit (loss)

% deviation from before

2021

$3,170,090

2.4%

2020

$3,094,963

Gross margin

Period

Gross margin

2021

53.55%

2020

51.96%

Operating profit (loss)

Period

Operating profit (loss)

Operating margin

2021

$44,490

0.8%

2020

$1,074,650

18.0%

Net profit (net loss)

Period

Net profit (net loss)

The net margin

2021

$31,286

0.5%

2020

$982,798

16.6%

Operating cash flow

Period

Operating cash flow

2021

N / A

2020

N / A

(Glossary of terms)

As of December 31, 2021, Innovation Beverage had $1.6 million in cash and $2.8 million in total liabilities.

Innovation Beverage Group Limited IPO Details

Innovation Beverage intends to raise an undisclosed amount in gross proceeds from an IPO of units consisting of common stock and warrants.

No existing shareholders have expressed interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, $600,000 to the seller, for working capital and general corporate purposes, including operation. […] We believe that the net proceeds from this offering and our existing cash will be sufficient to fund our operations for at least the next 24 months.

(Source – SEC)

The presentation by management of the company’s roadshow is not available.

With respect to ongoing legal proceedings, management has stated that the company is not party to any legal proceedings that would have a material adverse effect on its business.

The sole listed bookrunner of the IPO is EF Hutton.

Innovation Beverage IPO Commentary

IBG is seeking investment in the US public capital market to fund its acquisition of Reg Liquors LLC and for its general business expansion plans.

The company’s financials generated slightly reduced top line revenue (year-over-year), higher gross profit and gross margin, but reduced operating profit.

Free cash flow for the unaudited pro forma combined financial statements was not available.

Sales and marketing expenses as a percentage of total revenue rose sharply as revenue stabilized.

The company currently plans to pay no dividends (although it did pay a dividend in 2021) and intends to retain most future earnings for reinvestment in the business.

The market opportunity for spirits and related products is significant and is expected to grow at a moderate rate over the next few years.

EF Hutton is the sole underwriter and IPOs conducted by the company over the past 12 months have generated a negative average return (40.2%) since their IPO. This is an underperformance for all major underwriters over the period.

The main risk to the company’s outlook is its small size and weak capitalization as it seeks to expand into large markets with significant competition.

When we learn of management’s pricing and valuation assumptions, I will provide a final opinion.

Expected IPO pricing date: to be announced.

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