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HONEST COMPANY FILES FOR AN IPO

April 12, 2021
April 12, 2021
Honest Co.

The Honest Company, a consumer goods company founded by actress Jessica Alba, filed for a US initial public offering on Friday, April 9, and plans to sell shares on the Nasdaq under the symbol “HNST.” It listed a placeholder IPO value of $100 million. While the company’s 2020 revenue grew about 28% from the previous year, it reported a net loss of $14.5 million. It has never been profitable on an annual basis since its founding in 2012. In January, Bloomberg News reported that Honest could seek a valuation of about $2 billion in an IPO.

WHO: Co-founded by actress Jessica Alba, The Honest Co. was launched in 2012 as a direct-to-consumer proposition of safer alternative baby products. It has evolved into an eco-friendly consumer-goods business making baby, beauty, and household products, and marketing itself as a clean and “better-for-you” brand.

WHY: Honest said it was planning to use the proceeds from the offering to fund marketing and direct-to-consumer advertising, launch new products, and buy complementary businesses.

IN THEIR OWN WORDS: “As we continue pursuing our mission to inspire everyone to love living consciously, we regularly explore all various financial strategies and options—including our decision to file for an IPO,” said an Honest Co. spokesperson.

IPO DETAILS:

  • As disclosed in the S-1 document, the business reported revenue increased about 28% to $300 million, with diapers and wipes accounting for 63% of the company’s sales for the year ended December 31, 2020. Skincare and personal care saw an increase of about 36% and a bump in digital sales, which represented 55% of its revenue last year.
  • The business is looking to raise $100 million worth of shares (though this dollar amount can be a placeholder used to calculate filing fees).
  • In the risk factors section of its S-1, the company revealed it has incurred net losses each year since its inception, and it may not be able to achieve or maintain profitability in the future. The company’s 2020 revenue grew about 28% from the previous year but reported a net loss of $14.5 million, which narrowed from $31.1 million a year earlier; the company has never been profitable on an annual basis since its founding in 2012.
  • Jessica Alba still owns 6.7% of the company, L Catterton’s THC Shared Abacus is the lead shareholder with a 37.5% other large stakeholders are nstitutional Venture Partners at 13.9%, Lightspeed Venture Partners 12.3%, Fidelity 9.3% and General Catalyst 5.1% and Chief executive officer Nikolaos Vlahos has a 4.1% stake. It's not clear how many shares the company might sell in the offering and how many of the shares sold would come from investors cashing out.
  • The company’s products are sold online and in 32,000 retail locations, including Walgreens, Amazon, and Nordstrom, and Boots in the U.K.
  • The Honest Company’s biggest shareholders include L Catterton, IVP, Lightspeed Venture Partners, Fidelity, and General Catalyst.
  • Morgan Stanley, Jefferies, and J.P. Morgan are among the underwriters for the offering.

HISTORY:

  • To date, Honest Co. has raised $497 million in funding, according to Pitchbook.
  • As early as 2014, talks of Honest Co. planning an IPO started as Brian Lee, Honest’s former CEO and a co-founder, reportedly discussed taking the company public. In 2016 rumors of a planned IPO surfaced.
  • A funding round in 2015 valued Honest Co. at about $1.7 billion, a person with knowledge of the details at the time told Bloomberg.
  • In 2016, Unilever was eyeing an acquisition of the company but ultimately bought its competitor Seventh Generation for $700 million.
  • In 2016, Honest Co. was working with Goldman Sachs Group Inc. and Morgan Stanley on plans for an initial public offering, people familiar with the matter at the time told Fortune.
  • The brand’s approach to labeling its products has led to trouble in the past. In 2017, the company settled a lawsuit that claimed it fraudulently labeled some of its products as “natural,” “plant-based,” or “no harsh chemicals (ever!).” Honest settled the suit over cleaning ingredients for $1.5 million, and a suit related to “natural” labeling for $7 million.
  • Nick Vlahos, the current CEO, joined the company in March 2017. Vlahos previously served as the COO at The Clorox Company and as VP and General Manager of Burt’s Bees.
  • In 2018 L Catterton made a $200 million minority investment in The Honest Co. The size of the stake wasn’t disclosed. Honest raised $297 million from its six prior funding rounds, according to data from Dow Jones VentureSource.
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