Wall Street Readies For An Atkins Feast
By Jeremy Kahn

(FORTUNE Magazine) – Atkins Nutritionals, the company founded by the late diet doc Robert Atkins to capitalize on his famous low-carb weight-loss philosophy, makes money from people's desire to be thin. But the skinny on Wall Street is that Atkins is preparing for a fat IPO later this year or early next.

"It's not imminent, but it's one of the alternatives that we are evaluating to raise growth capital for the company," says Atkins director Ernest Jacquet. Jacquet is a co-founder of Parthenon Capital, a little-known $1.1 billion private-equity shop in Boston that is heavily populated with former consultants from Bain & Co. Last year Parthenon partnered with Goldman Sachs to put $533 million into Atkins in exchange for an 80% ownership stake.

Parthenon and Goldman appear to have had impeccable timing. Since they invested in Atkins, low-carb food has emerged as a marketing megatrend, and Atkins is the movement's best-known brand. But with hundreds of other companies jumping into the low-carb game, Atkins will need plenty of cash to battle the likes of Kraft and General Mills. What's more, given the faddish nature of most pop diets, some think the low-carb trend may be approaching its high-water mark. If that's the case, Atkins's backers would be wise to get out while the gettin' is good.

But just how much, ahem, bread might an Atkins IPO pull in? Food companies rarely command a valuation of more than 15 times Ebitda (earnings before interest, taxes, depreciation, and amortization). Given the buzz around Atkins, however, investors might be willing to pay, say, 20 times Ebitda.

Since Atkins is currently private, it's difficult to say exactly how much it makes, and Atkins won't comment on its profits. Sales of Atkins-branded food products totaled $148 million last year, up 225% from 2002, according to Information Resources, a company that tracks retail sales. Atkins also sells cookbooks and diet guides. And it makes money from licensing arrangements (both TGI Friday's and Subway inked big deals to develop and market low-carb menu items). Looking at companies with similar business lines, such as Weight Watchers, and based on what industry insiders think Atkins's margins might be, the company might have as much as $110 million in earnings by year end. Assuming an earnings multiple of 20, one gets a valuation of about $2.2 billion. Not bad, considering the company was worth about $666 million in October, based on what Goldman and Parthenon paid.

Who would get rich from an Atkins IPO? The Bain boys and their investors at Parthenon, which owns 67% of the company. Then there's Goldman's private-equity arm, which has 13%. Atkins's widow, Veronica, cashed out when Parthenon and Goldman bought into the company--most of the proceeds went to the foundation Atkins established to fund low-carb research. But current management, which includes CEO and chairman Paul Wolff and president Scott Kabak, owns a minority stake and would be rewarded.

But before Atkins has its Wall Street debut, the company will have to prove it can deliver a steady stream of profits. Some food-industry executives say the company may pull back from the deep discounting it has typically used to win supermarket shelf space. Also look for Atkins to do more licensing deals, since those arrangements give the company the revenue stream to go head-to-head with food industry majors. After all, if there's one thing Wall Street hates, it's companies with slim bottom lines. --Jeremy Kahn