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

SPACs like to eat. Opes Acquisition Corp. (NASDAQ:OPES) looks to close out the year by completing its combination with better-for-you fast casual concept BurgerFi. Other plant-based and better-for-you companies have been welcomed by the market after SPAC combinations, such as Tattooed Chef (NASDAQ:TTCF), which last closed at $15.67.

But, as we all get ready for another round of bullish holiday eating, it may be time to spare a thought for what we (and SPACs) are drinking. After all, consumer packaged goods (CPGs) marketed as sustainable accounted for more than half of the total growth in CPGs since 2015 and plant-based beverages are expected to grow by a CAGR of 8% through 2027, expanding to a market worth $22.9 billion.

Oatly

Plant-based milks, in particular, are driven by the same trends as meat-replacements like Impossible Foods and Beyond Meat with consumers increasingly willing to pay extra to get animals out of their food chain.

Oatly largely created the oat-based milk category and while it initially struggled to keep up with US demand – selling $200 12-packs on Amazon – it has hit its stride now that it has completed a New Jersey-based processing plant with a second US facility expected to come online soon. It is now widely available in grocery stores for about $5 for a half gallon.

Importantly, it has two qualities that SPACs love in being both popular with millennials and posting triple-digit growth in successive years, finishing 2019 with a turnover of about $206 million.

Like Beyond Meat, it has benefited from being a first-mover, but has also had to contend with educating the broader public on its new category. While Beyond Meat brought in General Mills and Tyson Foods as strategic investors as it scaled, Oatly has turned to institutional support, raising $200 million from Blackstone in June.

This raise reportedly gave the company a valuation of $2 billion, and Blackstone has not shied away from connecting its investment portfolio with SPACs if it feels the time is right. The group invested $118 million in electric vehicle-maker Arrival in October, which then announced a combination agreement with Blackstone-backed SPAC CIIG Merger Corp. (NASDAQ:CIIG) the next month.

Oatly has reportedly drawn the interest of strategic players in the food space and could still opt for an IPO. Despite thin EBITDA margins, Beyond Meat ended up performing among the best IPOs of 2019, but that was a simpler year for the IPO market.

For Oatly, the planets may have aligned to make a SPAC the clearest path to public capital.

Califia Farms

If not Oatly, Califia Farms could hit the spot for SPACs quenching their sustainability thirst.

While the US is Oatly’s fastest-growing market, it continues to do most of its business abroad. Meanwhile, homegrown Califia Farms has raised $340 million over the past five years and has firmly targeted North America as its battlefield for market share.

It also competes in categories beyond milk. While Oatly’s product line includes plant-based ice cream and yogurts, Califia Farms has expanded into shelf-stable cold brew, protein drinks as well as butters and creamers.

Milk remains the largest plant-based food category in US grocery stores at $2 billion, but it is being outpaced in growth by many of these new categories. Plant-based milk sales grew by 5% in 2019, while plant-based creamer sales grew by 34.3%, ready-to-drink beverages by 18.4% and butter by 8.4%, according to the Plant Based Foods Association.

Califia also presents a somewhat different value proposition to Oatly. It is appears to be growing at a slightly slower clip – about 50% year-on-year in grocery sales and triple digits in ecommerce according to its founder in May – but also claims to have achieved positive EBITDA.

This gives SPACs options in the space to their own taste. There is also plenty of room for both of these competitors to grow as plant-based milk already accounts for 13% of the total milk category and growing.

The most obvious fit for either company is Natural Order Acquisition Corp. (NASDAQ:NOAC), which just raised $230 million in its November 11 IPO and is specifically searching in the plant-based food and beverage space. Three other listed SPACs hunting for sustainability targets could also make the call – Rice Acquisition Corporation (NYSE:RICE), AEA-Bridges Impact Corporation (NYSE:IMPX) and Sustainable Opportunities Acquisition Corporation (NYSE:SOAC).

Health-Ade

A beverage target coming in closer to a BurgerFi price range would be Health-Ade Kombucha.

Kombucha, or fermented tea, is also popular with millennials and sales are growing steeply regardless of the pandemic. The overall kombucha market is expected grow to about $7 billion by 2027 at a CAGR of 19.7%.

Health-Ade has grown from a Los Angeles farmer’s market stall in 2012 to a brand churning out about 120,00 bottles per day and has picked up about $49.1 million in venture funding along the way.

Strategic beverage players have snatched up many Kombucha brands, such as KeVita, acquired by PepsiCo in 2016, and Clearly Kombucha, bought by Molson Coors in 2018. But, Health-Ade has thus far maintained an independent heading, although it took in a $20 million investment from Coca-Cola to help it build out its East Coast distribution.

That independence can be important for maintaining street cred with kombucha’s diehard fans. KeVita faced criticism and litigation for pasteurizing its kombucha for greater shelf-stability following its acquisition by PepsiCo. While this made sense to the beverage giant to scale up distribution, it is seen as a no-no by the purists.

Health-Ade still brews its kombucha in an extremely small-batch process using 2.5-gallon glass vessels and limited ingredients. It is also potentially better poised to benefit from the confluence of the broader clean foods movement with the increasing popularity of probiotic foods and beverages for various health benefits.

With a valuation estimated at around $500 million by PrivCo, Health-Ade would likely be a fit for consumer or generalist SPACs with trusts holding $100 million to $250 million. Better World Acquisition Corporation (NASDAQ:BWAC) with its focus on “healthy living” stands out as a particularly good pairing.