Matt’s Top 3 SPAC Targets – Consumer in Europe

Matt’s Top 3 SPAC Targets – Consumer in Europe

SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC targets in the European consumer sector. We look at why they are compelling and why each could be a fit for a blank-check merger.


 AUTO1 Group

As we discussed in a previous Top 3, the “digitization of everything” trend is only going to keep rolling faster, but this isn’t just happening in the US. Ten listed SPACs have stated they plan to initially look at overseas targets, with three more filed to IPO. Many European digital marketplaces that may not be household names in the US could make for intriguing combination targets.

One of those is online used car marketplace AUTO1 Group. The Berlin-based company operates multiple online brands across 30 European countries and has grown to about $4 billion in revenue in 2019.  This represented 21% year-on-year growth from 2018, and firms from outside of Europe have taken note.

Courtesy of AUTO1

In July, AUTO1 secured about $300 million in convertible note funding from San Francisco-based Farallon Capital Management and Boston-based Baupost Group. This followed an investment of about $539 million by Softbank in 2018 that reportedly set AUTO1’s valuation at $3.4 billion.

However, used car sales experienced sharp declines in nearly every European market due to the COVID-19 outbreak in the first half of 2020. These ranged from an 11.4% decline in ownership changes in Germany to drops of over 31% in Spain and Italy.

Used car sales began a late summer recovery in Europe and August sales were 10% higher than the same period in 2019, while new car sales continued to lag behind 2019 figures.

Beyond the pandemic, used car sales are expected to remain high across the continent in coming years due to government cash incentives in many markets for consumers to exchange their fossil fuel vehicles for newer electric ones.

From a business model standpoint, AUTO1 bears strong similarity to US-based Shift Technologies which just closed its $415 million combination with Insurance Acquisition Corp (NASDAQ:INSU). This valued Shift at roughly 1x its projected 2021 revenue, which would be a very buyer-friendly metric for a larger European peer with a bit more wind at its back.

Courtesy of VanMoof

VanMoof

For as many deals with wheels as we’ve seen in the electric vehicle (EV) space, SPACs seemed to have thus far passed over the spoked variety, despite similarly encouraging growth trends for e-bikes.

The global e-bike market was valued at about $15.4 billion in 2019 and is expected to grow at a CAGR of 7.49% with similar contours as EV trends. Like cars, e-bikes are sold both to individual consumers and increasingly in fleets that are rented out by private businesses and urban municipalities.

The virus has also gotten consumers pedaling away like never before. Through the end of September, bike travel was up by 162% in London according to data collected by the fitness app, Strava. This trend was mirrored in other cities like Berlin, New York and Barcelona, which saw year-on-year increases of 76%, 34%, and 32%, respectively.

Even before the pandemic, Deloitte estimated in 2019 that about 130 million e-bikes would be sold between 2020 and 2023, with 40 million in 2023 alone. By contrast, total electric automobile sales are expected to hit about 12 million in 2025.

Amsterdam-based VanMoof provides durable e-bikes with automatic gear shifting and hydraulic brakes for around $2,000. Founded in 2009, the company claims a community of over 120,000 international riders cultivated via online sales and VanMoof’s nine brick-and-mortar stores, four of which have popped up in the US.

VanMoof has raised a total of $73 million in outside funding, most recently closing a $40 million Series B in September. This came on the heels of a $13.5 million round four months earlier, and the company’s vertically integrated model from production all the way to the consumer is going to continue need capital to burn as it scales.

The company aims to build a “Tesla model” with sales run through heavily branded storefronts and direct-to-consumer rather than through independent bike shops. Co-founder Taco Carlier told MarketWatch last month that it aims to list publicly, and a SPAC combination might provide the opportunity to strike the e-biking zeitgeist while the iron is hot.

InFarm setup
Courtesy of InFarm

InFarm

An increasingly common question in produce aisles has become, “Locally grown? Well, how local?” For InFarm, the answer to that is “Literally, right in front of you.”

The Berlin-based company provides modular “vertical farming” setups where it grows a variety of leafy greens like lettuce, cilantro, and parsley directly in grocery aisles. It has deployed more than 1,000 of these mini-farms in stores and distribution centers in 30 markets across 10 countries.

In North America, it has partnered with Kroger and made its initial market entry with 37 locations in the Pacific Northwest.

In addition to removing energy usage from transportation in its hyper-local approach, InFarm setups use no pesticides, expend 95% less water and take up 99.5% less space than soil-based agriculture. The company also powers its vertical farms with 90% renewable energy with the goal of reaching zero emissions next year.

Given the popular consumer trends this sits on – and the increasing desperation by grocery stores to claw back food sales from meal kits and delivery apps – investors have been chowing down. Last month, InFarm closed the first $170 million tranche of its Series C led by LGT Lightstone and expects to reel in another $30 million before closing the round.

This brings its total funding since its 2013 founding to $300 million, having picked up $100 million in a June 2019 raise. And, InFarm’s ambitious scaling plans could likely stand to absorb even more growth capital. As it stands, the company has set a goal of expanding the footprint of its farming facilities by a factor of 10 from about 500,000 square feet to 5 million square feet by 2025.

While this marks a hot season for InFarm from a valuation standpoint, any SPAC team wanting to get in on the action would seem to have little trouble pulling together a sizable PIPE given current investor appetites.

Novus Capital Corp. (NASDAQ:NOVS) announced a similar deal last month with its proposed combination with AppHarvest that would take the greenhouse farming venture public at an enterprise value of $549.7 million.

As with AppHarvest, InFarm’s unique farming approach is made possible by tech enhancements including cloud-connected watering and monitoring of individual plant health. AppHarvest was valued at about 10x its projected 2022 net revenue and 2.2x its 2024E revenue, so a SPAC would definitely want to move before InFarm gets its 5 million square feet planted.

The overall market for fresh produce in the US is expected to grow from about $75.1 billion to $306 billion in 2025. Cultivation operations isolated from weather, pests and commodity pricing uncertainty are set to be the most resilient players able to tap into that growth.