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Case Study: Are SPAC deals a smart strategy for agtech?

Laura Krishfield, Senior Research Associate
December 20, 2021

Controlled environment agriculture (CEA) is reaching new heights in market momentum and attracting interest from various industry players. Accordingly, large corporations are placing their bets, and in parallel, a number of CEA startups have announced plans to go public.

In February 2021, AeroFarms, a leading CEA developer that produces leafy greens using an aeroponic production system, announced a deal to go public with special-purpose acquisition company (SPAC) Spring Valley. The company currently has four vertical farms situated in and around Newark, New Jersey, and is building an R&D farm in Abu Dhabi as part of a $100 million investment by the Abu Dhabi Investment Office. However, AeroFarms and Spring Valley mutually called off the deal in October 2021, without specifying the reason behind the merger's termination.

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USE CASE AND BUSINESS IMPACT

The transaction would have tentatively valued the new entity at $1.2 billion and recognized AeroFarms as the second CEA company to go public. By pursuing a SPAC deal rather than an IPO, AeroFarms would have been able to expedite the timeline for going public as well as make future growth projections to better sell the company to investors. Additionally, AeroFarms would have received capital upfront for scaling through the completion of the deal.

Other CEA companies that have gone public using SPAC include AppHarvest, whose shares have dropped 76% in value from the day it closed its SPAC merger. Despite this negative performance, AppHarvest recently announced that it had broken ground on the construction of two additional farms, with one of the farms backed by $25 million in cash credit from JPMorgan.

#LUXTAKE

Although there may be a number of reasons behind the termination of AeroFarms' SPAC deal, recent events may have impacted shareholders' confidence in the deal with AeroFarms. For one, AppHarvest's poor stock performance indicates that the value of vertical farming companies has been inflated and that the sector has many unresolved challenges regarding production capacity, pricing, and revenue growth. Second, multiple SPAC deals made by agtech companies appeared to underperform this past year (e.g., Ginkgo Bioworks and Benson Hill Biosystems). Like AeroFarms, these companies had been actively securing funding, investing in R&D, and displaying rapid growth potential but are in the introductory stages of commercialization. Clients should consider that while the market opportunity for CEA is present, innovators targeting new production systems and local markets have more to overcome.

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