The products, the management, the growth strategy, and the valuation — the distilled investment case for the busy investor.
MicroSalt — perhaps Tekcapital’s most promising portfolio company — is launching its IPO on 1 February 2024. Despite the delays, 2024 appears to be a little more welcoming to new companies than in 2023, especially given general expectations that inflation will continue to subside and interest rates will start to fall in the second half of the year.
While the entire business case is available within the Admission Document, this article has been written to capture the key details for investors new and old, as the company starts out on a life of its own.
Let’s dive in.
MicroSalt IPO: start with the product
When reviewing a ‘new tech’ company, it’s important to start with the product on offer. For example, Ondo InsurTech has its LeakBot and Abingdon Health its saliva-based pregnancy test — but perhaps the best comparator for MicroSalt is OptBiotix’s ‘SweetBiotix,’ a patented zero-calorie sugar alternative made from prebiotic fibres.
The company rocketed one day In July — as the business case for a product that could help partially solve the western obesity crisis took hold of investor hearts.
Of course, the sugar crisis has a twin: the salt crisis. The UK government’s salt reduction targets for 2024 were set out in 2020 and there is a significant way to go if these are to be met. In particular, the government warned that ‘businesses are expected to work towards achieving the 2024 salt reduction targets. Retailers and manufacturers should ensure their products meet…targets.’
If you don’t know about the salt overconsumption crisis, you have been living under a rock. Heart disease is responsible for one third of deaths globally, representing one death every 1.7 seconds.
Cardiovascular disease costs the UK £19 billion every year — and if the average salt intake was reduced by one gram each day, the data shows this would save £288 million a year and thousands of lives. There is a proven link between excess sodium intake and CVD, and the World Health Organisation (WHO) has stated that reducing sodium intake is one of the cheapest ways to improve public health — indeed, it wants sodium consumption to drop by 30%.
For context, the global sodium reduction market was estimated to be worth roughly $5.5 billion in 2021 and is expected to grow to $9.6 billion by 2032 — at a CAGR of 5.8%. And despite a huge variety of sodium-reduced alternatives to traditional salt already on the market, none have succeeded in establishing a dominant market position.
There’s one simple reason why — they all taste awful.
Chefs and customers add salt to almost everything because it improves the flavour of almost any savoury food you can imagine. And as most salt alternatives taste vile, they will never take off. More specifically, they have a bad aftertaste — as they contain potassium chloride which exudes a post-flavour akin to swallowing a bottle of Angostura.
MicroSalt’s ‘Crystal’ salt alternative contains only sodium chloride and non-GMO maltodextrin, so arguably actually tastes much closer to salt than competitors. It contains 50% less sodium than traditional salt —using a patent protected and scalable manufacturing process that produces a salt crystal 100x smaller than traditional salt. This means improved adhesion to food and faster dissolving on the tongue, achieving that distinct salty taste but with half the sodium.
The primary IP is a patent in the US which expires in September 2030 — though 30 more are pending globally. The patent covers both the manufacturing process and the product itself, creating a double-walled legal moat that would be difficult to penetrate. Usually, patents cover one or the other, and the company also has several trademarks in place across western markets to protect its brand identity.
Quality management
Of course, many promising products face an early death without competent management at the helm. Happily, MicroSalt is awash with managerial talent; CEO Rick Guiney has led the company since late 2021 and has a 35 year work history including stints at Anheuser-Busch and Quorn Foods, alongside 28 years as CEO and founder of the now well-known US-based Classic Snacks.
CFO Konrad Dabrowski is a chartered accountant who spent 5 years with Deloitte US — the chap was the global accounting manager for Restaurants Brands International, working alongside businesses such as Burger King, Tim Hortons and Popeyes.
Then there’s Non-Executive Chair Judith Batchelar, with over 35 years of experience in the UK food industry, including as a director of Sainsbury’s and Safeway, alongside additional roles at Marks & Spencer.
In addition to the experience, the management team have the equally valuable industry contacts needed to see further expansion.
Customers and growth
As is typical, the company has two main sales channels: business to business (B2B) and business to consumer (B2C). At present, the focus is firmly on larger volume B2B opportunities with multinational FMCG companies. For context, many opportunities are now through the standard R&D, production testing, and consumer testing processes.
In B2B:
The company has received purchase orders from two Tier-1 customers (A and B). Proof of concept has been demonstrated through the SaltMe! crisp consumer brands and crystal saltshakers which are currently on sale at over 1,000 shops across the US, and also on Amazon.
It’s worth noting that the company’s low sodium salt can also be used in various products including nuts, tortillas, popcorn, bread, cereals, and energy bars. And it has working relationships with three manufacturing facilities capable of producing up to 5,444 tpa, meaning that expansion should be relatively smooth.
MicroSalt has five key B2B clients at present. Customer A is a Fortune 500 pharmacy/food retailer, which has agreed to substitute the salt within four of its nut SKUs with MicroSalt’s alternative, across 800 shops initially. And it’s already started stocking the crisps and shakers — management expect these products to be rolled out across the company’s 9,000-strong estate in 2024. This leaves the question — who is this mystery customer?
Given that it has ‘more than’ 9,000 shops, then it’s most likely CVS as Walgreens trails behind at less than 9,000 at present. A further clue came on 19 October 2023, when MicroSalt secured distribution of the crisps into Long Drugs shops, the leading pharmacy chain in Hawaii. Long Drugs was acquired by CVS in 2008 — and the major has form in trialling new products outside of its own branded chains before moving them into mainstream stores.
Customers B and C are sperate entities but are part of the same group. Customer B has made an initial 9.5Mt purchase order, after global approved vendor status was achieved in November 2022. Further line additions and geographical expansion is expected.
Customer D is expected to make an initial purchase order in mid-2024 — and this is a future catalyst to watch as this major customer is expected to release a statement at this time citing MicroSalt solutions as a ‘key pillar’ in their low sodium strategy.
Customer E is in the early planning stages, but orders are expected in April 2024. Beyond these five, there are ‘active discussions with several prestigious FMCG and food producers in both the UK and US.’
In B2C:
As mentioned above, the company has two consumer products: SaltMe! crisps and the low sodium saltshakers. It has partnerships with major distributors including United Natural Foods and KeHE — and an agreement to provide a low sodium solution to US Salt LLC.
The shaker was launched on Amazon US in October 2022 in 2oz and 6oz sizes and are now sold in 440 shops across various retailers — including Hannaford Bros in parts of the US. They’re also now available on Amazon UK. The crisp offering is sold in four different flavours, with 113,000 bags having been purchased on Amazon US since November 2020.
It’s worth re-stressing that while the consumer side is important, the focus is squarely on B2B as the growth opportunity.
Finances and valuation
The company generated $300,000 of revenue in H1 2023, and while there was a significant loss of $2.5 million in FY22, this reflects the capital expenditure required to scale up the business. This is completely normal and is reflected in the valuation given in the Schedule One document.
MicroSalt expects to raise £3.1 million in primary proceeds during the IPO — giving the company an anticipated market capitalisation of £18.5 million on admission. At this point, 78.4% of shares would be held by Tekcapital (parent), inferring its stake would be worth in the region of £14m compared to a current Tekcapital market cap of £13 million. Tekcapital has three other portfolio companies.
It’s worth noting that TEK valued MicroSalt at £14 million in its interim results midway through 2023, so this latest figure may be slightly optimistic. However, there has been substantial recent progress — and given that TEK itself is only valued at circa £13 million, this one IPO could well be worth more than the parent’s entire market capitalisation.
Investors can make of that what they will, though of course, this is not financial or investing advice.
The bottom line
MicroSalt is an excellent IPO opportunity with a strong management team and carefully planned growth strategy. When details of its major B2B customers are made public, the company will hit the public investing consciousness fast.
As usual, there are risks — but the rewards on offer are correspondingly promising.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
