SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among the companies changing the way food and beverages are produced. We look at why they are compelling and why each could be a fit for a blank-check merger.
SPACs have played both sides of COVID-19’s market impacts, and they have been successful in buying low on sectors like hospitality that held tough through the lockdowns. But the pandemic was also a boon to other subsectors that are not likely to see their uptick in demand fall any time soon.
One of those is the technology around food preparation, or kitchentech, which saw change both at the consumer and commercial level. On the home side, sales of new cooking appliances spiked with folks quarantining or becoming foodies out of sheer boredom. On the business side, restaurants across the US have re-opened their kitchens only to find few workers willing to cook in them.
Technology is constantly being increasingly introduced into commercial kitchens as rising wages squeezed already thin margins. With the ongoing work shortage, those same businesses are now even more urgently seeking to do more with fewer humans on the job.
The overall kitchentech market was projected at $19.6 billion in 2020, but it is expected to sizzle at a 13.6% CAGR to $42.2 billion in 2026, according to Pitchbook. Despite this, M&A in the sector has been dropping since 2017 in both value and volume, in part because so much consolidation by the big guys has already happened.
That may provide an opening, however, and SPACs have already shown they recognize the value. Velocity (NASDAQ:VELO) announced a deal to combine with BBQGuys in July, hitting the outdoor kitchen market, while Silver Crest (NASDAQ:SLCR) made the bet in August that Chinese consumers are going to soon be adding coffeemakers to their homes by announcing a combination with the China branch of the Tim Hortons coffeehouse chain.
This confluence of macro factors may be what it takes to get one of the oldest kitchentech businesses in existence – Vitamix – to come to the table.
The blender and food processor-maker is being run by its fourth generation of a family that has managed the business since 1921. But, as it sees its products entering the spotlight, now could be a good time to transition the company’s long-time corporatization to a public listing that would leave future generations with flexibility.
Jodi Berg, the company’s CEO and great-granddaughter of its founder, spent most of her career away from the family business, but took over in 2011 and has since steered it towards the sorts of trends that perk retail attention. Vitamix pioneered what would later be known as the “infomercial” in the 1960’s, but it has kept up with the times.
Recognized as the high-grade option in the industry, Vitamix supplies commercial food service as much as it does individual consumers. It has also entered into the composting appliance business as younger consumers now express concern for where the byproducts of all that chopping and blending go too.
This mix of female leadership and focus on sustainability opens it up to a wide range of SPACs looking for some more durable goods in that field to combine with. Proceeds could also go towards category expansion whether organic or inorganic. Lesser-known cooking appliances like Instant Pots and sous-vide machines have skyrocketed to the forefront, with an estimated 20% of American homes owning an Instant Pot and sous-vide appliance sales expected to eclipse $1 billion before 2023.
Time will tell whether Silver Crest strikes gold in getting into Asian coffee just as consumers there begin to switch from tea, but there is still value to be had in the developed markets as well.
Specifically, the business model of replaceable coffee pods that propelled Keurig Dr Pepper (NYSE:KDP) to a $50 billion market cap likely could be repeated or even expanded upon. The space is competitive, but Nespresso, a division of Nestle (SIX:NESN), could present just such an opportunity.
While the consumer giant Nestle is hardly hurting for cash, a SPAC could potentially convince the group that Nespresso could generate more value for the group as a spinoff than as an internal division. A variety of trends touch specifically upon those cups and coffee machines. Among them, a steadily returning workforce to offices where such machines are a fixture as well as the new markets that Tim Hortons is trying hard to get into.
This has been reflected in Nespresso as it was Nestle’s fastest growing group with 14.6% organic growth and $3.3 billion in sales in the first half of 2021. That’s a jewel that Nestle will likely want to keep close to heart, but if it can make more buy seizing the coffee rebound enthusiasm in a spinoff, it would have that option in a SPAC transaction. Nestle has shown itself willing to mix up its portfolio when the time is right, having already disposed of its North America water brands this year.
In fact, this division was sold to Oak Rock in partnership with prominent SPAC-backer Metropoulos & Co., whose frequent transaction partner Alec Gores recently spun off another subsidiary of a European public company via Gores V’s deal with Ardagh Metal Packaging (NYSE:AMBP).
But, while Vitamix and Nespresso work to get machines into homes, offices and restaurants, TriMark is aiming at the whole enchilada.
TriMark provides B2B products and solutions to the food service industry across the board and was bought out by Centerbridge Partners in 2017 for $1.35 billion. Aside from providing an exit opportunity to Centerbridge, a SPAC transaction could help TriMark stay aggressive on the latest trends in the space with tech acquisitions of its own.
Given that its business is largely oriented towards hospitality, catering and healthcare food service, it faces a short-term secular increase in business. But, a SPAC transaction could also give it the opportunity to add some new feathers to its cap. Just as Sweetgreen gobbled up kitchen-automator Spyce, TriMark is in the ideal position to grab automation products of its own and offer them to its deep book of hospitality clients.
The company also recently merged its two e-commerce platforms BigTray.com and ChefsToy.com in a streamlining that could help as a prelude to a listing.
To this end, TriMark has strong ties to the SPAC world as its longtime chairman and CEO, Jerry Hyman, now chairs Banyan Acquisition Corporation (NYSE:BYN.U), which has filed to IPO but is yet to list. TriMark would also fit the profile that the Conyers Park III (NASDAQ:CPAA) team has tread, with previous combinations with sales outsourcer Advantage Solutions (NASDAQ:ADV) and Simply Good Foods (NASDAQ:SMPL). Simply Good now closed Thursday at $34.49, following its 2017 deal with the Conyers Park I.