SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies set to see increased demand among companies that could see high demand in a time of rising food prices and scarcity. We look at why they are compelling and why each could be a fit for a blank-check merger.
Population growth and climate change already had the United Nations predicting major global food shortages over the next 30 years, but the Russia-Ukraine war is now propelling world food supplies towards a catastrophe, the head of the United Nations Food Program told the Security Council this week.
Russia and Ukraine are two of the top five wheat exporters, accounting for 30% of the planet’s supply, as well as 20% of its corn and as much as 80% of its sunflower seed oil. Tanks and bombs are currently churning up fields that would normally need to be seeded with spring wheat about now, with corn planting season around the corner. (Ukrainian tractors also seem to be rather busy capturing Russian tanks at the moment).
Much of the wheat exports from both countries also leaves through their Black Sea ports. Ukraine’s ports are currently blockaded with many caught in the fighting while even access to Russia’s ports on the sea has been risky as its military has fired on several civilian freighters in the area since the start of the conflict. Meanwhile, US wheat plantings so far this year have come in below expectations, with 5% less spring wheat planted than the average year.
Past Top 3’s have looked at how various macro trends are changing what and how consumers are eating and venture investment into foodtech surged 150% in 2021. But, the supply side of the equation is also going to need a major investment to keep up with both near-term and long-term challenges.
SPACs have not played a ton in agriculture directly over the past couple years. But, soybean processor Benson Hill (NYSE:BHIL) listed via a combination with Star Peak II in September and vertical-farming company Local Bounti (NYSE:LOCL) followed suit in November. Both were preceded by indoor farming venture AppHarvest (NASDAQ:APPH), which combined with Novus in February 2021.
Inari would be closest to Benson Hill out of these. But, while Benson Hill does the heavy lifting of milling its proprietary soy varieties into food ingredients and other products, Inari keeps its feet firmly planted in the technology side of the value chain.
The Cambridge, Massachusetts-based company is using AI tools to genetically modify wheat, corn and soy to be both efficient and more sustainable. It has set the goal of gaining 20% higher yields for all of these crops while developing a corn variety that requires 40% less water and 40% less nitrogen fertilizer.
If this latter target could be hit, it would equal reducing a half a metric ton of CO2 per acre of corn cultivated with the variety. Agriculture is quietly a highly polluting industry, but achieving these improvements would make Inari a strong beacon for ESG cash.
It also keeps its own operations away from the dirtier and lower-margin side of the business by rolling out through partners and commercial relationships with independent seed companies. It has already inked strategic collaborations with partners in the US and Australia and has branched into the European market through its office in Ghent, Belgium.
This has been a fruitful model for SPACs in the past, as genetically modified crop developer Bioceres (NASDAQ:BIOX) listed via the Union team’s first SPAC in 2019 and last closed at $13.62.
Inari hasn’t publicly laid cards on the table indicating how much revenue it is generating from these relationships thus far, but the promise of its technological promise was enough to achieve a $1.2 billion valuation in its $208 million Series D raise in May 2021.
This round included participation by G Squared, which has one SPAC, G Squared Ascend I (NYSE:GSQD) working to close a combination with logistics technology firm Transfix and a second – G Squared Ascend II (NYSE:GSQB) – still searching for a target.
Climate change and rising consumption demand aren’t the only macro challenges that the agriculture sector has to contend with, however. Agriculture is also undergoing a persistent labor shortage as Americans increasingly opt not to work in the sector and rural areas are depopulating in much of the country.
The US Department of Agriculture estimates 48% or more of the agricultural labor force is currently made up of undocumented immigrants, which emphasizes both the level of unmet labor demand and the fragility of supply should immigration enforcement become more stringent.
Livermore, California-based Monarch is bringing an approach to this problem that SPACs are rather familiar with – autonomous EVs. Its MK-V is designed to work the fields with or without a driver for about 10 hours between charges and charging in about 4 hours.
While more complicated tasks like harvesting will still require some amount of human hands, this is a small portion of the overall labor in maintaining crops, which need to be watered, fertilized and sprayed with various treatments regularly over the months they are growing. The MK-V also has a 360-degree camera system feeding into an analytics platform allowing farmers to conduct autonomous monitoring of crop conditions.
Monarch has not fully rolled out this design, which is still undergoing testing, but it is taking reservations and it has already signed a multi-year licensing agreement with CNH Industrial (NYSE:CHNI). CNH also invested in its $61 million Series B in November 2021, and these strategic ties could tick the box that many SPAC teams look for before getting serious with a target in EVs, lidar or autonomous vehicles.
Monarch’s approach also appears somewhat more de-risked than past SPAC targets with more ambitious autonomy goals. The nature of tractor work means driving in straight lines down crop lines and not needing to compete with traffic, pedestrians or the other obstructions and safety concerns of public roads.
Past deals for Embark (NASDAQ:EMBK) and Aurora (NASDAQ:AUR) followed a similar thesis as they are developing technology to first automate the more predictable highway stretches for a heavy trucking industry under a similar labor crunch. Northern Genesis III (NYSE:NGC), whose previous SPAC took Embark public, is currently searching with a $172.5 million trust, while Aurora’s partner team has a new SPAC filed to IPO in Reinvent Technology Partners X (NYSE:TRPX).
There’s also plenty of efficiencies to be found simply within grain supply chain to begin with as agriculture is typically late to integrate technology.
Fargo, North Dakota-based Bushel has been working to get the sector up to speed with farm management software and payments systems to bring farming into the connected world. On the producer side, this software suite helps farmers calculate costs of planting decisions triangulated between historical weather and soil conditions as well as local and futures pricing.
Further down the chain, Bushel has a grain trading platform that allows producers and wholesalers to manage offers and conduct commercial sales in a single place. The industry has lacked a centralized trading solution and much of the sector remains fragmented across legacy systems and old paper methods.
This gives Bushel plenty of white space to attack with a cash infusion, although its platform already reaches about 40% of grain origination in the US and about $22 billion of grain is contracted annually within its ecosystem. Agri-giant Cargill has also invested in the company and committed to using the platform in certain of its internal and external tools.
Bushel is also innovating with the sorts of fintech twists that could drive higher values for itself in the public markets. Its trading platform already helps futures speculators manage bids and hedges and can verify the provenance of organic and sustainable crops for ESG purposes from the farmers it has integrated. The company’s $47 million Series C in April 2021 was designed fuel a further push into payments including credit offerings.
It also acquired two bolt-on software companies in 2021 and this roll-up strategy still could be further accelerated with a SPAC deal. Gladstone (NASDAQ:GLEE) stands out as an obvious potential partner. It is led by David Gladstone, who would bring valuable expertise and potential synergies, as he manages four publicly-listed companies – LAND, GLAD, GAIN, GOOD – each dealing with investment in farmland and commercial finance.
This could also be the right time for the two to talk as Gladstone’s transaction deadline is coming up on November 8, 2022, although this can be extended by three months for a contribution to its trust.