We should probably start this formal update by highlighting the simplest, yet oddly most frequently discussed, change that the Very Good Food Co. has undergone in the last few weeks.
Graduating from the Canadian Stock Exchange (CSE) to the Toronto Venture Exchange (TSX-V), Very’s new ticker in Canada will now be VERY.V. While the change exposes Very to a brand-new potential pool of investors, no action is required from existing shareholders.
Except of course, you’ll have to type V instead of CN to search your ticker on your broker app.
This switch of exchanges helps pave the road ahead for VGFC to grow and continue graduating to more mature exchanges. For example, the possibility of transition to the TSX-V’s parent exchange, the TSX, as well as America’s coveted NASDAQ, become a lot more tangible.
“We are very excited to be listing on the TSXV. Our Rupert (Vancouver) facility is currently being commissioned with food production planned to commence in the coming weeks, VERY will soon be able to meet the growing demand for its products in both Canada and in the US and further drive revenue. As we continue to achieve our business objectives, listing on the TSXV will allow the Company to expand its shareholder base, enhance shareholder value and accelerate the Company’s M&A initiatives in pursuing strategic opportunities,” chimed CEO Mitchell Scott.
March 17th of 2021 marked the first day of trading on the new exchange for The Very Good Food Company.
We may quiz you on this next year.
Let’s Talk Marketing
For the last 2 years VGFC has worked with Lloyd-James Marketing Group Inc. to get its products on the shelves of Whole Foods, Sobeys, and The Pattison Food Group (think Save-On-Foods, Urban Fare), among others. Lloyd-James’ team consists of skilled national sales representatives who have nearly a decade of experience in the plant-based food industry alone, building impressive retail connections such as Loblaw and Walmart throughout the years.
With that being said, VGFC’s strategic acquisition of the Marketing Group to further ramp up their marketing and retail grasp throughout the country seems like a no-brainer. While the acquisition saves Very 5% in broker fees, which would come off their gross revenue, that is simply the tip of the iceberg. VGFC will now boast an internal Canadian retail sales team consisting of the experienced sales representatives from Lloyd-James. This team is expected to empower the company to expand their retail network 10-fold. With 275 current points of distribution as of current, they expect to have over 2,000 by the end of the year.
That’s what we call a 10 bagger.
The financial details of the transaction are as follows:
Purchase price of Lloyd James Marketing Inc.: C$1,075,000
Payment terms: 62,329 shares of VERY.V @ C$6.42/share (C$400,000 worth, at time of transaction) +
C$250,000 cash +
C$350,000 cash contingent on milestones relating to sales targets +
C$75,000 as a holdback for indemnity purposes (insurance, in case Lloyd-James doesn’t meet its targets or obligations)
The shares which Lloyd-James will beneficially own are locked up for a 4-month period.
In summary: expect to see a whole lot of Very Good Food products popping up on your local grocery store’s shelves, if they haven’t already.
Let’s Talk About Debt
Is debt a financial shackle? Or a tactical scaling method?
Depends on who you are, and what your situation is. If you’re a corporation, this also depends on your Weighted Average Cost of Capital, also known as WACC.
As you can imagine, VGFC most definitely falls into the tactical scaling definition. The plant-based retailer will now have access to a C$20 million revolving line of credit and a C$50 million asset-backed term loan.
This C$70 million total credit facility proves both the massive potential that Very has to grow and scale, as well as the impressive collection of assets it bears, to be able to secure a credit facility of this size. Access to a huge pile of credit is going to be an integral tool to help VGFC scale its operations drastically (Europe is now a retail target) without robbing itself of its working capital. Not to mention the 9.95% interest rate only applies to the funds that have been drawn from the credit facility.
In layman’s terms, this means that The Very Good Food Co. simply has access to C$70 million, which it can decide to use as it pleases, only amassing interest payment obligations on the capital it needs to use. This sounds a lot more appealing than the 9.95% (C$6.95 million) per year they would owe in interest if they decided to outright borrow the C$70 million at once.
As you may have read in our previous article regarding WACC, this formula consideration helps establish whether your company should issue more shares for capital or use debt financing. The debt-to-dilution ratio is a crucial one to consider when aiming to optimize your company’s financial health, and it’s clear that Very’s decision to avoid dilution and borrow at desirable rates, after 3 previous equity financings, is a decision that keeps shareholder value at the top of their mind.
That is what we call a Very Good decision.
Disclaimer: The Very Good Food Company is a communications client of Edge Investments, and we own shares in the company.