SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies that may be on SPACs’ mind has Black Friday and Cyber Monday roll in next week. We look at why they are compelling and why each could be a fit for a blank-check merger.
As we’ve seen already this year, timing can be everything for a SPAC deal. For the consumer sector, the calendar itself dictates this with as much as 25% of retail sales coming through the holiday season. All eyes will be on these consumer companies when this season officially kicks off a week from now on Black Friday, and some big names are already suffering from lowering expectations for the rush to come.
Any SPAC deal announced in the next few weeks would still take months to complete. But, what better way to stir up excitement for the last stretches of a de-SPAC process than getting the final numbers on how the company crushed it in Q4?
Eighteen SPACs are currently searching for consumer products and services targets and many could also use some news about now. Both Recharge (NASDAQ:RCHG) and Ackrell SPAC Partners I (NASDAQ:ACKIT) IPO’d in 2020 and Ackrell I’s transaction deadline is set for December 23. It may extend its deadline up to two times, however.
Recharge has until October 5, 2022 to complete a deal and so it is under less pressure but it will soon be running short on breathing room on the back end. In a sign of the tightening market for new SPACs, fellow consumer-searching vehicle CHW (NASDAQ:CHWA) listed just 80 days ago but has a deadline set for less than a month after Recharge’s.
This is a space that welcomes large-trust SPAC attention as well, and Shein is out to turn heads.
The Chinese company, which sells fast-fashion apparel to predominantly Gen Z women through ecommerce, was found to be massively outspending category rivals on social media marketing in the months leading up to the holiday season. These efforts are gaining traction as it became the most downloaded app on iOS and Android in the US in May, beating out Amazon (NASDAQ:AMZN).
The continued development and sophistication of the Chinese market has left its textile-makers no longer content to be base manufacturers for American companies, but rather to build their own brands and market directly to Western consumers. Shein in many ways exemplifies that trend, and US investors are sure to be interested in buying a piece of that rise.
The US is now Shein’s biggest market and it has logistics centers on both the east and west coast, but it ships to 220 countries out of four other logistics centers in China, Belgium, India, the Philippines.
Shein also would be a big catch for any consumer SPAC, with its last capital raise in August 2020 placing its valuation at about $15 billion. Shein reportedly notched about $10 billion in revenue that year, but it quashed rumors it was contemplating an IPO this summer. These comments came right around the same as the Chinese government crackdown on companies listed on its own exchanges, and it may not have wanted to put a target on its back.
But, a prominent SPAC team could potentially help it plan out a path to the public markets that would dodge some of the risks. Shein already counts SPAC-backers Tiger Global and Sequoia among its investors, and perhaps the most obvious fit is fellow heavy-hitting team KKR I (NYSE:KAHC). It raised about $1.4 billion in its March 17 IPO and could muster considerably more capital via a PIPE to help Shein keep up the marketing pressure on its rivals.
SZ DJI Technology
The holiday rush isn’t all about the retail platforms, but the hottest toys that the masses just have to have, as Arnold Schwarzenegger and Sinbad know. We covered drone targets in a dedicated Top 3 in February, but it continues to feel like a sector with a fair amount of private targets ripe for a retail investor shopping spree.
While most of DJI’s drones are of the higher-end variety, it has mini-drones that retail for about $239 and it definitely has Black Friday sales. Its pricier models are ultimately the core business of the company, however, as they are designed with 5.1k video recording quality and expanded safety features for professional use.
This diversification away from the average consumer has allowed it to put its feet firmly in commercial and industrial sectors that need rugged, high-performance models for film production, agriculture, energy as well as search and rescue.
The Shenzhen, China-based company is another one for the big-game hunters among SPACs as it has steadily increased its valuation to $16 billion in its last venture capital deal in 2018. This round brought in $1 billion in new cash for the company, but that doesn’t mean its capital needs are sated.
The competitive world of drones has put pressure on all players to have well-protected IP as they work to largely design and solve for the same tasks. SZ DJI has racked up 512 active patents with 661 pending, according to Pitchbook. SZ DJI has also been proactive in expanding that portfolio through acquisitions to try and elbow out competitors, buying 12 companies since 2015.
Not all of these have been small bolt-ons, as SZ DJI snatched up iconic Swedish camera-maker Hasselblad in a leveraged buyout in 2017. A SPAC deal could give it fuel to take aim at other historic properties and widen its status as a household name in Western markets.
There are plenty of high-upside targets in the consumer space that won’t need ten figures to reel in, however.
One of these is Santa Monica, California-based Verishop, which is setting out to be the ecommerce platform not merely adapted for 2021, but created for it. While all consumer companies these days have to have an influencer strategy, Verishop puts influencers at the center of its product curation and the general flow of the site.
Verishop users can run through the site’s latest additions through influencer livestreams or follow their creator community’s product and gift guides. The company also focuses on independent brands and the sorts of products that would normally be siloed in their own direct-to-consumer (DTC) efforts.
Like Shein, the platform is laser-focused on the newest crop of consumers who have grown up always making buying decisions based on Instagram or YouTube. The pitfalls of that social media-buying is that it has been rife with scammers and knock-off peddlers. Verishop’s name stands for “verified shop” as it acquires the inventory from the verified sellers before putting them on the site.
And, while it is still in the early innings, it has assembled managers and advisors that have largely done this before. Verishop co-founder and CEO Imran Khan formerly served as chief strategy officer at Snap (NYSE:SNAP) and worked on Alibaba (NYSE:BABA)’s IPO as a managing director at Credit Suisse (SIX:CSGN). Verishop’s 2020 Series B drew investment from Japanese ecommerce giant Rakuten (TYO:4755) and renown luxury brand LVMH Moët Hennessy Louis Vuitton (PA:LVMH).
One also does not need to guess at Khan’s predilections when it comes to the IPO process. He told CNBC in 2020 that the DoorDash (NYSE:DASH) and Airbnb (NASDAQ:ABNB) IPO processes showed an “epic level of incompetency from the bankers” due to the amount of money left on the table when the stocks instantly soared. He continued that he doesn’t consider the IPO process to be “broken”, but that banks need to work a lot harder on it, which presents a wide opening for a hard-working SPAC.