SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies set to see demand increase amid the “Great Resignation.” We look at why they are compelling and why each could be a fit for a blank-check merger.
SPAC teams need to have their goggles on and their feet firmly planted with all of the headwinds hitting the product in the past several months.
Several of those trends – particularly the inflation and interest rate-driven heel turn against technology and growth stocks – are hard to dodge given they are favored sectors for SPAC deals. But there are still tech applications that haven’t felt the wind quite as hard, and, in fact are seeing it fill their sails in some cases.
That’s because these are not the only big trends moving the market. Before the seeds of the current slump were planted, the bigger macro worry in the marketplace was the Great Resignation and that has quietly only grown more acute. A record 4.5 million Americans quit their jobs in November, according to Labor Department statistics released January 4.
Omicron hit since that month and thus the two months following may carry yet new record-setting quitting numbers. While social scientists can debate the underlying causes why more than 10 million openings have not been filled, employers are left with three options: boost compensation, outsource or automate.
All three have long been deployed to greater and lesser degrees, but option two has largely been played out by major employers and it isn’t helping amid supply chain snarls unless that job is completely remote. Option one, meanwhile, can lead to mere cannibalization. Workers making lateral moves from one employer to another for temporary perks or wage bumps are not easing the overall worker shortage.
This leaves option 3 – automation. And automation plays have been much more warmly received by the market.
The higher the value of the underlying skill, the higher the value of automating it, and hospitals do not appear slated to become less busy anytime soon. With that in mind, automation in the operating room is going to continue to be in high demand.
Vicarious Surgical (NYSE:RBOT) which combined with D8 Holdings in September, hasn’t been spared this week’s slump but finished 2021 trading above $10 due to its promise of using robotics to increase surgical efficiencies.
Like Vicarious, CMR Surgical uses robotic arms to complete minimally invasive procedures guided by surgeons who are afforded greater visibility via the system’s displays and readouts. Minimally invasive procedures are likely to increasingly become the norm in medicine as they lead to safer outcomes and shorter healing times. But, all require a measure of augmented aid as the surgeons performing these tasks can’t rely on the visibility of open incisions to see what they are doing.
If you add up the salaries of everyone involved in a major operation requiring multiple surgeons and a team of additional doctors monitoring other life signs, it is also not hard to see the cost savings that accrue from having robotics in the operating room.
CMR’s Versius robotics system is already in use in several European and Middle Eastern countries as well as India and Australia. And, the Cambridge, UK-based company announced plans in October to build a 75,832 square foot manufacturing facility to meet growing demand. This is to be funded by a $600 million Series D led by Softbank that the company pulled together last June.
But, this round included about $181.5 in debt and the broader commercialization of Versius, which first debuted in 2019, could likely find cheaper capital to burn on the other end of a SPAC deal.
From a pure number standpoint, however, operating rooms are not where the largest worker shortfalls lie. Of the 4.5 million that told employers to take this job and shove it in November, 1 million were restaurant and hospitality workers.
This is perhaps not surprising as the sector has among the lowest median wages. Nonetheless, it tends to also be a low margin sector and upping compensation can only stretch so far. North American consumers are still not quite accustomed to robots greeting and serving them in the hospitality sector, but this is old news in Asian markets.
Shanghai-based Keenon has been putting robots into service since 2010 and these have gradually diversified beyond robot waiters delivering food to those that rove spaces disinfecting microbes with UV light and distributing supplies and mail throughout traditional office settings.
This work has primarily been deployed in about 500 cities in China, but Keenon has clients in 60 countries and achieved unicorn status via its $200 million Series D in September 2021. While there are plenty of Asian SPAC teams that may be more familiar with Keenon’s services, the company may also find synergistic ties with NewHold II (NASDAQ:NHIC). The NewHold team’s first target, Evolv (NASDAQ:EVLV) brings AI tools to optimize security screenings at event venues while reducing their required headcount.
Neither of these touch upon the highest-profile unionization battleground, however – that of logistics and distribution centers. All major shippers and brands have been working to further automate while the labor costs of their existing human components continues to rise.
There are a variety of solutions out there for this process and they range from those offering individual sorting robots to those bringing solutions to fully automated turnkey facilities. The latter approach has been represented among SPAC targets by Berkshire Grey (NASDAQ:BGRY), which combined with Revolution Acceleration in July.
Berkshire Grey has mostly traded under $6 since mid-November, but it is also especially vulnerable to the current market pressures as it essentially emerged from submarine mode through its deal and is still relatively early in its commercialization rollout. By contrast, SVF Investment 3 (NASDAQ:SVFC) announced a combination with Walmart’s (NYSE:WMT) preferred automation partner Symbotic in December and is still trading barely under its trust value at $9.96, which counts as a win in the current market.
Beijing-based Geek+ is closer to Symbotic in the state of its commercialization having already integrated its solutions into the logistics facilities of DHL, Kate Spade and Coach in China, among others. But, it also differs from Berkshire Grey in its business model in that it focuses on selling individual robot models rather than an all-inclusive factory in a box. Nonetheless, its logistics robots, which run the gamut of autonomous forklifts, shuttles and sorters, are still offered via a recurring revenue robot-as-a-service model.
This is a recipe for attracting attention from Perception Capital Corp. II (NASDAQ:PCCT) which is hunting for a robotics target with its $200 million in trust. But, Warburg Pincus was also an investor in Geek+’s last three funding rounds and also has two SPACs currently searching in Warburg Pincus I A (NYSE:WPCA) and I B (NYSE:WPCB).