Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Meal-kit delivery company Blue Apron is mulling its options for raising capital, including an initial public offering, according to Bloomberg News. But one shouldn't be surprised to see a potential suitor swallow the profitable New York-based startup before it gets far enough along down the IPO route to select a ticker symbol.    

Logical buyers include grocery-store operators, who could use the acquisition as a way to boost sales and create a stickier relationship with consumers as they aim to steer the flow of spending at restaurants back toward eating at home. 

In or Out?
Consumers are increasingly spending on dining out, rather than buying groceries to cook at home
Source: Commerce Department
*Data excludes retailers such as Wal-Mart, Target and Costco which sell grocery items in their stores but are considered "general merchandise retailers" by the Commerce Department

Royal Ahold, which owns Stop & Shop and delivery service Peapod, has already outlined its ambition to expand into prepared meal kits (and ready-made dinners), a move that its CEO hopes will bolster private-label sales by at least 2 percentage points in fiscal 2016. Snapping up Blue Apron would accelerate its growth in this area and give it a head start on competitors.

Then there's Whole Foods Market, which partnered with (and reportedly, invested in) on-demand delivery company Instacart. This doesn't preclude it from a deal with Blue Apron because users of the Whole Foods app can browse recipes and order the ingredients necessary for delivery by Instacart, but not in the exact quantities required by the recipe -- a feature that appeals to convenience-hungry, time-poor consumers.

And Kroger, which has a track record of jumping on changing consumer behaviors (as my colleague Shelly Banjo spelled out here), is somewhat behind in this department. The company's online ordering service ClickList isn't as convenient as it could be: Consumers must travel to Kroger stores to pick up their orders. 

Time to Shop
An acquisition of a meal delivery service such as Blue Apron would boost year-over-year revenue growth for large grocers.
Source: Bloomberg

The buyer pool isn't limited to these three grocers, but they each have the cash and borrowing capacity to match or beat an estimated IPO valuation of roughly $3 billion. That's a decent leap from Blue Apron's last valuation of $2 billion, achieved in a fundraising round almost exactly 12 months ago.

An outright sale would give investors like Bessemer Venture Partners, Stripes Group, First Round Capital and Fidelity Investments the chance to lock in a stellar return at a time when other investments may be facing "down rounds" (raising capital at valuations lower than previously achieved). Also, by avoiding an IPO, such investors wouldn't need to worry about lockup periods and equity-market gyrations that could cut into their profits as they slowly and eventually sold down their stakes. 

A grocer could squeeze synergies out of a Blue Apron deal, as it should have access to the same produce -- be it eggs, onions or chicken -- at a lower cost. That could allow the company to more easily pass on promotional discounts to customers as a method of combating larger rivals like HelloFresh, smaller rivals such as Plated and Marley Spoon, or edging out the upstart meal-kit delivery services being developed by Amazon (with Tyson Foods) and even The New York Times.  

By seeking new funding, Blue Apron may have landed itself on the shopping list of suitors. That could leave the stock pickers eager to add a meal-kit delivery company to their basket empty-handed -- at least for now. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Sadly, BLUE and BLAP are taken. APRN appears to be available?

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net