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Case Study: Getting innovation timing right - SPAC deal sets LanzaTech up for growth and success

Mukunda Kaushik, Senior Research Associate and Tiffany Hua, Research Analyst
April 26, 2022

LanzaTech initially began as a company seeking to commercialize its microbial gas-to-alcohol technology. Despite the skepticism and challenges that come with synthetic biology conversion, the company has made considerable commercial strides and established itself in multiple downstream CO2 utilization applications. Evolving from gas-to-alcohol to alcohol-to-product, LanzaTech's platform now supports the production of chemicals, polymers, and synthetic jet fuels.

In 2020, the company spun out LanzaJet to focus on the production of sustainable aviation fuel and is reportedly considering subsequent spin-outs targeting other industries. The next year, LanzaTech expanded its scope to CO2-derived chemicals and polymers for consumer packaged goods. Most recently, LanzaTech announced plans to go public through a merger with AMCI Acquisition Corp II, a special purpose acquisition company (SPAC), in a deal that values LanzaTech at USD 2.2 billion. A direct consequence of the SPAC deal is the substantial influx of capital that sets the stage for LanzaTech to establish such spin-outs and fund commercial-scale manufacturing of products that can impact the decarbonization efforts of the energy and materials sectors. This case study explores the implications of the SPAC deal and LanzaTech's new market position, as well as the importance of CO2 utilization for emerging materials and future energy needs.

Lux Research - Materials - Newsletter

USE CASE AND BUSINESS IMPACT

Compared to previous SPAC deals in the materials and energy sectors like Origin Materials, Danimer Scientific, and PureCycle, LanzaTech stands out as the first carbon capture and utilization (CCU) company to go down the SPAC route. CO2 utilization products face challenges in market penetration because they are significantly more expensive than their fossil-derived counterparts, and developers need to validate commercial-scale production to justify high production costs. This is where the raised capital from the SPAC will help LanzaTech further accelerate commercialization momentum and build out bolt-on operations through its licensing approach. The company's business model supports decentralized chemical and fuel production, thereby allowing emitters to cut down on feedstock costs and instead repurpose their existing emissions to generate a secondary revenue stream. Furthermore, the licensing approach allows LanzaTech to offload engineering, procurement, and construction costs and reduce significant sinks in capital expenditure. With the significant growth in projected capacity, we expect Lanzatech to be well poised to address downstream needs of emerging materials and future energy.

Energy Transition. LanzaTech's CO2-derived fuels target the aviation industry, which is not only in significant need of decarbonization, but also lacks other alternatives for decarbonization. CO2-derived fuels also allow airlines to establish a tighter control over fuel supply as reliance on fossil fuels is reduced and upstream oil and gas activity is limited. Additionally, they allow partners in the value chain to repurpose and continue operations of existing pipeline networks, blending and storage tanks, and airport refueling stations. As LanzaTech is already doing, it is important to have fuel production facilities in close proximity to airports or in areas that allow easy logistics for transportation and storage.

Materials Innovation. The deal will bolster the commercialization of CO2-derived materials and chemicals alongside biobased and recycled materials and chemicals. LanzaTech is currently gauging these downstream markets through brand partnerships in consumer segments including L'Oreal, Unilever, Zara, and Lululemon. The barrier within LanzaTech's approach to the materials industry is consumer awareness and acceptance. LanzaTech is certainly taking on a first-player advantage but is also dealing with the downside of necessary market development where it must build up traction for its "recycled carbon" products. Furthermore, CO2-derived materials will undergo similar examination to biobased and biomass balance materials as these materials have received mixed reactions regarding their sustainability value proposition. Still, LanzaTech clearly has a strategy to improve the perception of CO2-derived products given its high-profile pilot partnerships. Additionally, rising raw materials costs may be LanzaTech's saving grace where the sustainability value proposition may be worth the potentially smaller premium compared to incumbent materials.

#LUXTAKE

Clients should be skeptical of SPACs due to the lack of sufficient scrutiny and due diligence, but LanzaTech shows more potential than others to succeed. With higher commercial maturity than most direct competitors in the CCU landscape and with several industrial partnerships already in place, the company has laid out the critical foundation needed for scale-up and can now channel the raised capital to build and deploy industrial production processes. LanzaTech was positioned to raise USD 275 million through the deal, but might fall short given that the SPAC's stock is trading below the expected benchmark. The confluence of a regulatory push and an industrial pull for decarbonization and growing pressure to meet net-zero targets make it timely for LanzaTech to scale up its operations, but other external factors need to be considered to gauge market penetration. For CO2-derived products that require a hydrogen input, the market adoption of LanzaTech's products will be dependent on the availability of low-cost renewable hydrogen. Since the overall carbon intensity of CO2-derived products hinges on the carbon footprint of the feedstocks, access to green hydrogen or on-site electrolyzers is paramount. On the other hand, for consumer markets, Lanzatech must be sure to effectively convey the sustainability value proposition of its CO2-derived products and foster consumer awareness with its downstream partners.

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