Data Snapshot: 2021 started out as year of the ag SPAC. How’s that going?

Editor’s note: Data Snapshot is a regular AFN feature in which we analyze agrifoodtech market investment data provided by our parent company, AgFunder.

In last week’s Data Snapshot, we took a look at M&A in the agtech space in 2020 and the first half of 2021. Last year saw several big-ticket M&A deals, like Singapore sovereign fund Temasek‘s $365 million acquisition of a majority stake in Israeli irrigation tech firm Rivulis, and agrochemical firm ICL‘s $60 million buyout of precision ag company Growers.

Moving onto 2021, so far we’ve had Valmont’s $300 million acquisition of Israeli crop analytics startup Prospera; as well as John Deere‘s $250 million purchase of tractor ‘upfitter’ Bear Flag Robotics [disclosure: AgFunder is an investor in Bear Flag.]

However, there is one subset of M&A that we didn’t include in last week’s analysis – one that increasingly dominated the headlines during the first half of this year.

SPAC deals are M&A transactions in which privately held companies merge with, or are acquired by, publicly listed shell companies. This enables the privately held firm to go public via ‘reverse merger’ – often a much quicker, and arguably a less regulatory burdensome, route than filing for an IPO itself in the traditional sense.

In the first half of 2021, SPACs came to the agtech world. Since the start of the year six agtech SPAC deals have been announced – most involving controlled environment agriculture (CEA) or biotech, and all valued at over $1 billion.

However, only two of these — AppHarvest‘s merger with Novus Capital [disclosure: AgFunder is an investor in Root AI, which was acquired by AppHarvest] and Ginkgo Bioworks‘ combination with Soaring Eagle Acquisition Corp — have completed to date:

Select agtech SPACs, 2017-present

How do SPAC deals work?

The shell entity is called a ‘special purpose acquisition company’ (hence, SPAC) and has no operations or assets, but is intentionally designed to raise money through its own IPO with a view to acquiring or merging with a privately held company.

One potential advantage for the private company that’s SPACcing is that it can maintain greater control over the pricing of its stock compared to a traditional IPO. That’s because the company only has to agree a price with a single investor — the SPAC that it’s merging with — rather than myriad prospective buyers, as is the case in a traditional IPO. A SPAC deal also allows the company to skip the investor roadshow process that typically takes place in the weeks leading up to the IPO, streamlining the overall timeline.

What are the prospects for 2021’s agtech SPACs?

As noted above, one of the perceived advantages of SPAC deals is that they can provide a faster and ‘easier’ route to going public. Many of this year’s six agtech SPACs appear to be heading for the retail markets on the promise of their growth and impact, rather than their current financials.

Whether this is a prudent approach waits to be seen. Ginkgo Bioworks only started trading in the past few days, and its ‘bio-facturing’ business isn’t purely focused on agriculture. Greenhouse operator AppHarvest — which completed its SPAC deal back in February — published the results of its first full quarter as a public company last month.

On the whole, the market didn’t react well to its Q2 2021 numbers – particularly its revised revenue targets for the year, which it slashed by -65% from what it had stated at the time of the Novus merger. AppHarvest said it would restructure its business, focus more effort on its tech and services offerings, and “eliminate” parts of the organization to reduce inefficiencies. Its share price plunged by -29% on the day.