SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies producing consumer staples. We look at why they are compelling and why each could be a fit for a blank-check merger.
There’s no sugar coating how choppy the market has been – for SPACs especially – these recent months, but if you are a company selling consumer staples, you may have barely noticed. Pick any consumer staples ETF – XLP, VDC and FSTA – all up 5.3% to 6.8% over the past three months. SPAK is down 28.6% over the same period.
Meanwhile, as we touched upon in last week’s Top 3 focused on Latin American targets, SPACs that have married themselves to consumer staples have been among the asset class’ most successful. Simply Good Foods (NASDAQ:SMPL) de-SPAC’d back in 2017 and closed yesterday at $35.39 while fellow de-SPACs Hostess (NASDAQ:TWNK) and Utz Brands (NYSE:UTZ) finished Thursday at $20.52 and $16.41, respectively.
There are plenty of reasons to invest in consumer staples in neutral times, but while many of the preferred SPAC sectors are being battered by inflation fears, the sector is a particularly strong safe harbor. Offering additional protection from SPAC-specific scrutiny, any company in this sector that is even close to public-ready is bound to have significant hard revenues.
Staples may be low-margin and unsexy in many ways. But to set up a multi-stage meme, what if we are talking about a company that had $1.4 billion in revenue when it last disclosed it in 2017 – that specializes in the cuisine of America’s fastest-growing demographic group – that entered the culture wars with its CEO endorsing Trump in 2020.
The latter may have been a short-lived bump, but it led to sales of certain Goya categories like beans and rice to rocket up over 80% as conservatives reacted to calls to boycott it over its CEO Robert Unanue’s pro-Trump stance. Whether such controversies lead to lasting intrinsic value remains to be seen, but we’ve already seen the value it can generate in the public markets with the pending deals by Digital World (NASDAQ:DWAC), CF VI (NASDAQ:CFVI) and SilverBox I (NASDAQ:SBEA) with conservative-aligned brands.
Ironically, this also could provide an impetus for a liquidity event in its own right. An Unanue family business since 1936, the majority Goya’s private shareholders reportedly moved to remove the outspoken CEO, and successfully prevailed upon him to be less outspoken. Transitioning to public company governance could take off some of the heat while still reaping some conservative trading enthusiasm, which might end up as the best of both worlds for the company.
But, the family drama is far from the most attractive attribute of the company. The share of the US population identifying as Hispanic or Latino grew by 23% between 2010 and 2020 while all other groups grew by 4.3%, according to the US Census. The market for Latino foods furthermore is projected to grow at a CAGR of 6.65% in the coming years, about 50% faster than the food market overall.
Goya already is already working to position itself to take a larger share of that growth with investments in expanding its own manufacturing and distribution footprint in the US. But, this capex-heavy work could always use more fuel to burn and Goya would have more financing options as a public company.
Mavis Tire Supply
At the same time, as much as consumers may try and put off servicing the tires on their cars, this is another market that is inescapable in good times and bad.
Mavis Tire Supply has seen its publicly-listed competitors have a strong year with AutoZone (NYSE:AZO) up 69% over that time and Goodyear (NASDAQ:GT) up 78.8%. Mavis itself opted to go the private equity route about a year ago, being carved out of Express Oil by BayPine, TSG Consumer Partners and West First Management for $6 billion in March 2021.
While it has missed out on some potential value growth in the public markets over that time, it has been on a path of nuts and bolts growth, bolting on 165 new service locations with its purchase of Tuffy Tire in December. This brings its network of service centers to over 1,200 in 35 states and there are plenty of other consolidation opportunities across the space.
For BayPine to offload Mavis now would be a little early into the normal private equity cycle. But, there is plenty of SPAC capital looking for a home, and it could stay along for the ride with a continued Mavis consolidation play even beyond a SPAC transaction. Conyers Park III (NASDAQ:CPAA) is one such team that may want to give Mavis a look under the hood.
Conyers Park III has until August 2023 to do a deal, but its team, which has executive experience at broad consumer groups like P&G (NYSE:PG), J&J (NYSE:JNJ) and Kraft Heinz (NASDAQ:KHC) is very familiar with the strategies that could drive Mavis forward.
Not all consumer staples have to be delivered through stodgy old business models, however. Harry’s has taken the Dollar Shave Club playbook, but used it cut an independent path for longer.
Dollar Shave Club’s sale to Unilever (LON:ULVR) for $1 billion just five years after its founding turned plenty of heads and marked a major milestone in the evolution of direct-to-consumer (DTC) trends. Harry’s was founded one year later in than Dollar Shave Club in 2012 and may have wanted to follow a similar path, but the FTC deemed it “too big to be bought” and blocked its acquisition by Schick-owner Edgewell Personal Care (NYSE:EPC) last February citing anti-trust concerns.
With a strategic buyout seemingly off the table, Harry’s best chance for an equity event that gets it to the next stage of its path likely comes down to IPO or SPAC. It has raised about $840 million in outside funding from venture capital firms since 2012 that would likely prefer to see liquidity soon. Harry’s co-founder and co-CEO Jeff Raider confided to Forbes that he has been apologizing to investors for not returning their capital sooner in the wake of the Edgewell takeover falling through.
The wait for an IPO may still be longer, however, with half of the eight companies listing since the start of the year stumbling into the red out of the gate. But, Harry’s is also not some hot potato that investors should be afraid of holding when the music stops. Its founders say it is already profitable, which is a welcome selling point among SPAC targets at the moment, and it will have the opportunity to watch a smaller competitor test the SPAC waters.
Bright Lights (NASDAQ:BLTS) announced a $1 billion combination with men’s grooming company Manscaped in November and expects to close it in the first quarter of 2022. Harry’s itself may find the right dancing partner in Powered Brands (NASDAQ:POW), which raised $276 million in January 2021 with a goal of merging with a digitally-native personal care brand.