(NAS:FREE) Whole Earth: A Sweet Company To Buy

Whole Earth (NASDAQ:FREE) is a consumer package company with multiple market-leading brands trading at around 10x 2021 earnings. Given its dominance in the artificial sweetener and licorice industries along with a rapidly growing natural sweetener segment, we believe FREE has a 50 to 100 percent upside from here.


Whole Earth became public via the ACT II SPAC in June 2020. This acquisition bought two subsidiaries – Merisant and MAFCO – from Ron Perelman’s conglomerate into the public light. Under the conglomerate, these two companies languished in obscurity and funneled all their cash to the parent. Growth and capital allocation were not a priority for these companies.

They (CEO and CFO) can’t believe how their jobs are going to change now from what was a job to send money up to the parent, to one where they now have a robust job where they can actually redirect resources” – Jan 2020 Irwin Simon

Upon FREE going public, Perelman, in financially dire conditions, started selling his 11 percent ownership in the company (this is also what allowed ACT 2 to decrease the purchase price from 560mm in EV to a 440mm EV). This has depressed the share price for several months, and it has only now recently recovered. The sponsor of Act II is Irwin Simon, the founder of Hain Celestial where he grew revenues from nothing to billions of dollars through countless acquisitions.

FREE is composed of two segments: sweeteners – ranging from tabletop sweeteners such as the prevalent Equal to baking sweeteners such as Swerve – and a licorice extract and derivatives manufacturer. Its sweetener segment has done well with the majority of its traditional brands – Canderel has market leading shares in several countries along with Pure Via. FREE’s natural sweetener brands Whole Earth (introduced in 2016) and Swerve (recently acquired in Nov 2020) are growing rapidly with Whole Earth benefiting from a nationwide Starbucks (NASDAQ:SBUX) partnership. Whole Earth has grown 73% yoy and its All-Commodity Volume is still only 1/3 that of FREE’s other brands, giving it ample runway. Below is a list of its products and market rank in respective countries.

It is important to note that all sweeteners are not the same. There are sweeteners that are solely used for beverages – coffee, tea, and soda – and there are sweeteners for baking. The latter has been harder to create as it has to measure approximately like sugar, bake like sugar, and taste like sugar. Roughly half of all sugar consumption is used in baking. Whole Earth sweeteners are known for their compatibility with coffee and tea and Swerve is recognized as a baking sweetener. Post the Swerve acquisition, FREE’s sweetener business will generate about 210mm in revenue. FREE manages its sweetener production through contract manufacturing which allows it to have an efficient fixed cost base. Currently it is operating around half capacity with most of its sweeteners. Although its artificial sweetener brands are stagnant, its natural sweeteners – which make up about 50% of the sweetener revenue – should more than overcome this headwind. Here are some of its products on Amazon. All of its products are very highly rated.

About four years ago, FREE entered into a partnership with Starbucks putting its Whole Earth sweetener in about 13k stores nationwide. We see this as substantial proof of Whole Earth’s taste and quality. This gave the Whole Earth brand a significant amount of social proof and branding. So how has the sweetener business fared in Covid times? FREE’s sweetener segment has shown resilience even with the restaurant industry being severely curtailed. Sweeteners sold to the restaurant industry make up approximately 14% of its sweetener revenue. Overall, while total sweetener revenue has been flat, natural sweetener brands such as Whole Earth grew 70% in the first half of 2020. We expect this natural sweetener segment to continue growing rapidly over the next few years given the recent new products (allulose, erythritol, etc.) introduced to market in the last two years along with a growing footprint.

The cash cow of FREE is the licorice segment MAFCO. This is not the candy licorice that we all know (although this is one of the end confectionery uses for licorice) but the licorice extract and derivatives from the plant. Its main use is in cigarettes/chew/sniff as a moistening and flavor agent. About half of its licorice revenue is from tobacco usage. The other uses of licorice are pharmaceutical applications as a sweetening agent to give the medication a good taste – think Flintstone vitamins. These other segments are growing at around 5% per year. Licorice is an extremely small cost (about .001% of the cost of the product) to the customer with large ramifications if the quality, supply, or taste changes hence why these contracts are extremely sticky and durable. MAFCO has dominated the licorice industry for the last 150 years, and it currently has greater than 50 percent market share.

“MAFCO Worldwide is the largest manufacturer and supplier of licorice products in the world. We’re five to six times larger than our greatest competitors” – Dec 2019 Investor Call

We don’t see the competitive landscape changing in the near future. It is interesting to note that its competitors are the same ones they were facing 20 years ago (from examining M&F Worldwide 2000 annual report to FREE’s S1 filing). Being the largest player gives its customers stability in the quality and supply of licorice which is important given that the licorice plant grows in countries that are prone to social unrest and economic strife. Many of its suppliers have single source agreements with FREE giving it an exclusive supply. MAFCO has ensured a consistent supply of licorice to its customers since WW2, quite a remarkable track record. MAFCO for the last 10 years has been funneling cash up to its parents (MacAndrew & Forbes), and only recently has gotten more attention. MAFCO has for the first time hired a head of sales in July of this year whose role will be to expand sales to existing and new customers. FREE has announced its intention to grow the TAM for this product along with opportunistic bolt-on acquisitions of its competitors that are quite small in comparison (about 20% of the size). Below is a snapshot of the company vs. its competitors.


FREE’s artificial sweetener brands (Equal and Canderel) could lose share to more natural sweeteners. We ascribe a low risk to this as the sweetener market is not zero sum (with sugar it is) and natural sweeteners could expand the TAM with artificial sweeteners. Also the natural sweeteners are directed more at the North American market in which we believe it has a smaller presence.

More regulatory crackdowns against licorice end products such as tobacco. This was responsible for a loss of 10mm in 2019/2020 as cigarettes in the EU had to phase out the use of licorice as a moistening/sweetening agent. The tobacco segment is its highest-margin business and other end-use applications of licorice are more competitive such as confectioners.

Another risk to FREE is the pursuit of higher dollar acquisitions instead of focusing on growing out its natural brands – primarily Whole Earth, Swerve, and Pure Via.

Lucas Bailey (president of licorice division) recently resigned. He resigned to pursue matters in private equity so we do not believe this is a reflection of the business. However, this might delay the progress of MAFCO.


The natural sweetener market is growing rapidly as people become more health conscious. Natural sweeteners make up greater than 30% of FREE’s revenue post Swerve acquisition. The “free from” sugar market is about $13B and is growing around 6% per year. FREE is poised to ride the next wave of natural sweeteners.

Whole Earth is benefiting from a larger e-commerce presence. In 2020, it generated about $10mm in e-commerce, and in 2019, it introduced several Amazon-exclusive brands. Although this is a small portion of its overall revenue, this will help it gain brand awareness and bring products to market quicker.


FREE’s licorice segment alone should be worth around $450mm. This is due to its high margins and enormous competitive advantages. Its licorice segment is generating about $40mm in FCF per year. Although its revenue from tobacco will decrease in pace with consumption – roughly 2% per annum – we believe it will be able to more than make up for this through expanding other end-use applications such as cosmetics, pharmaceuticals, and confectioners.

FREE’s sweetener segment needs to be decoupled into its artificial and natural sweeteners to be valued properly. Given the longevity of the dominance of brands such as Canderel, Equal, we believe a 10x multiple on earnings would be adequate. This would value this segment at around $120mm or around 1x revenue. Its other growth brands Whole Earth, Pure Via, and Swerve with the distribution arm of the parent company should be able to reach its full potential within 3-5 years. This would put its combined revenue anywhere between $150mm and $250mm. Conservatively assuming that it has the same margins as Canderel and Equal (even though these are more premium brands) would yield a valuation of around $150 mm for these two segments. Adding all the segments together would put FREE at about $770mm and after subtracting out the $150mm in debt, adding the value of its sizable inventory (around $80mm due to having about two years of licorice inventory), and factoring in the dilution would yield an equity value of around $630mm. An upside of around 50 percent. Depending on how well its natural brands do, FREE could be substantially more.

The large brand presence and the long runway of the natural sweetener market make the company a modest-return, low-risk investment. The sweetener market’s penetration is about 15% in the US whereas it’s only about 3% globally. The long runway coupled with strong brands makes FREE a compelling investment. Now that it is a standalone company, FREE can leverage its distribution, supply chain, management to expand its natural sweetener and licorice segments.

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