SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among players in the Big Data space We look at why they are compelling and why each could be a fit for a blank-check merger.
In case you missed it, SPACInsider released our Full Year 2021 Report this week, detailing all the trends in the busiest SPAC year on record. Through 613 IPOs, 267 combinations announced and 197 closed, there were clear lessons to be learned, even if the current market appears difficult for the asset class as a whole.
Among the 2021 crop, only completed deals from the electric vehicles, renewable energy and natural resources sectors finished the year collectively trading above $10. But, zooming out a bit further leads to different conclusions.
At 2021’s close, three of four best performers among deals that closed in either 2021 or 2020 were companies that leveraged big data to serve their respective industries. The market has since shifted somewhat, but Grid Dynamics (NASDAQ:GDYN), Vertiv (NYSE:VRT) and Matterport (NASDAQ:MTTR) each finished 2021 above $20 in a sign of the durability of big data plays.
For one, these sorts of companies tend to be built on recurring revenue through software-as-a-service (SaaS) contracts that can be scaled as the data steadily grows. Also, with the market turning against the technology sector for the moment due to inflation and rate hike fears, SPACs may also be able to strike bargains with public-ready data targets. Each is likely to have a universe of listed comps with depressed prices at the moment and the mechanisms in SPAC deal structures that preserve upside value to sellers look a lot better as compared to IPOs in such times.
Seattle-based Seeq fits the bill on all of these characteristics as a company that digitizes the industrial processes of clients across a broad range of sectors to drive optimization and analytical work.
Although digitization has been a running trend throughout companies of all scales, a fair amount of industries are still operating primarily with unconnected machines and are therefore are essentially flying blind when looking for driving efficiencies. Depending on the size of the client, this can involve giant revenue opportunities when priced based on number of connected devices or sites.
To wit, Seeq recently added Saudi Aramco (SE:2222) to its client list, an oil company with a market cap that is roughly 6.5x the size of Exxon Mobil (NYSE:XOM). As Seeq rolls out over the Aramco operations, it will be able to feed it back automated error detection alerts, corrosion analysis and general fleet-wide asset monitoring.
The upside of Seeq’s business is that it is likely to be sticky as clients are unlikely to want to go to the care of removing all of the internet-of-things (IoT) monitoring devices from their equipment and go blind again, even if switching to a competitor.
Plus, many of its biggest clients are already investors. Chevron (NYSE:CVX) and Cisco (NASDAQ:CSCO) have already invested via their venture arms in addition to Aramco. It has raised $155 million to date from such investors through five rounds since 2013 and its maturity now could draw interest from Innovative International (NASDAQ:IOAC). Its team is led by former Stamps.com (NASDAQ:STMP) CEO Mohan Ananda and is hunting for enterprise SaaS targets with operations in the US and Asia.
Beyond data collection and analysis, DataRobot is working to take things a step further by opening up access to cloud AI tools to firms that may not have the bandwidth to optimize those internally.
Its in-house team of about 300 data scientists have picked up some of the more difficult AI work from its client base that includes about a third of the Fortune 50. DataRobot estimates that data scientists in general spend about half of their time on non-strategic model development and its tools can help clients make the most of their time.
In practice, this work can look quite different from industry to industry. For French supermarket chain Carrefour (PA:CARR), DataRobot boosted its store expansion planning to be able to test five to 10 possible location ideas, with predictive financials, while the team had previously been able to work through one potential idea per day.
DataRobot completed its 10th equity round in a July 2021 Series G that brought its total outside funding to over $1 billion and raised its valuation to $6.3 billion. As such, it has not just scaled but would be hardly be a scrappy newcomer to the public markets among enterprise data firms. Its rapid growth has also included 10 acquisitions since 2017, and public market capital could add significant flexibility to that strategy.
Incorta has been helping clients map and organize their data since its founding in 2013 and recently launched a partner program to expand its ecosystem. This is an approach pioneered by early data players like Palantir (NYSE:PLTR), giving clients discounted access to Incorta software and tools, while also providing Incorta visibility into their data work that can further optimize the platform.
These partnerships also effectively recruit these partners as business development associates, further propagating Incorta’s products through their own business operations. This partner strategy was largely the work of its EVP of Business Development and Strategy Steve Walden, who previously served in the same role at Alteryx (NYSE:AYX) and Collibra.
Walden is not the only public-company talent that Incorta recently imported as it named former Alteryx President Scott Jones as its CEO in January 2020, marking a year running that it appears to have gotten its governance and strategy in line for a public listing. If it were to list via a SPAC, Incorta could potentially stay involved in the SPAC world long beyond it’s deal’s completion, however.
In 2021, Palantir expanded its partner strategy to include a new role for itself as a PIPE investor in SPAC transactions with partners, sometimes including in-kind investments in the form of free or discounted Palantir data services to boost offerings. These targets included high-profile tech companies running the gamut of healthcare in the case of Babylon (NYSE:BBLN) and Roivant (NASDAQ:ROIV) to eVTOLs like Lilium (NASDAQ:LILM) and vehicle data-tracker Wejo (NASDAQ:WEJO).
Palantir has slowed its pace of SPAC investments since hopping into 10 deals in Q2 2021, but it nonetheless presents a model that would be interesting to see followed, particularly by a de-SPAC returning to pollinate the next crop.