The 3 main targets PSPC – Consumer/Retail

SPACInsider contributors Anthony Sozzi and Sam Beattie compiled their three favorite potential SPAC targets among consumer and retail companies this week. We take a look at why they’re compelling and why each might be suitable for a blank merger.

As fun as it was in 2020 and 2021 when SPACs were saving the world with their investments in electric vehicles and green energy, it’s clear that for now SPACs need to focus on the providers of what people will buy, whatever the shape of the world. is in.

In addition to being a sector populated by generally safe and cash-generating companies, there is also currently a larger mismatch between their price-earnings ratio in the public markets. Earnings for consumer staples have fallen +73% over the past three years, but the market capitalization of listed consumer staples companies has only risen +12% over the same period. It even under-paced revenue across the space, which grew by +26%.

For consumer companies who are ready to scale up and prefer to remain independent, this would indicate that a simple IPO will not be the way forward. Year-to-date, the five consumer goods companies that have gone public are down -57.5%. If these companies had instead opted for SPAC agreements, they could have at least lined up earn-out clauses that would have locked the value up when the market recovered.

Lipari Foods

In an environment where boredom is sexy, Lipari has legs.

The Warren, Michigan-based company is a grocery retailer focused on the U.S. Midwest and East Coast and has vertically integrated both up and down the food value chain. Upstream, it has manufacturing facilities in four Midwestern states producing food products ranging from candies to deli meats, cheeses, noodles and jams. In 2019, it added a new approximately 20,000 square foot factory near its Michigan headquarters.

Downstream, the company owns 24 exclusive consumer brands to bring products to the shelves where it has the ability to take the entire wholesale sales. All this allows him to acquire a large share of the operations he considers essential and a relatively passive distribution as a third party for other customers.

It’s essentially the playbook for US Foods (NYSE:USFD), which is more restaurant-oriented than grocery-oriented, but otherwise has a business model comparable to Lipari’s. US Foods is trading at 14x EBITDA and has moved in a narrow range against the broader market with a 52-week high of $39.73 and a low of $26.08, roughly matching to its five-year volatility.

Lipari was acquired by private equity firm HIG Capital in 2019 at a time when it was making around $1 billion in sales. The same group has an outstanding SPAC with HIG Acquisition (NYSE: HIGA), which would therefore be a logical vehicle for Lipari to take to the markets. But, HIG announced earlier this month that it would withdraw its warrants and could not extend its October 23 transaction deadline. Nonetheless, contact with the wider SPAC network is likely to benefit Lipari’s ability to strike a deal.

The farmer’s dog

Perhaps the fastest growing food expense is for our furry friends. In 2021, Americans spent $50 billion on pet food, representing a 13.5% year-over-year growth.

A 2021 survey found that 17% of Americans spend as much or more on their pet’s food as their own, so pet food is likely to be as sustainable a category as any. any other in a recession. This is great news for New York-based Farmer’s Dog, which sells premium wet pet food through a subscription model.

Farmer’s Dog’s focus on nutrition and health is a key focus for aging millennials and Gen Zers who are coming of age and have placed more emphasis on the subject as consumers than previous generations. And, the company’s focus on food may help it avoid some of the complexity of the broader pet products e-commerce players.

The New York-based company of about 300 employees that supplies millions of pet meals each month only has to focus on the food supply chain, while broader pet retailers must deal with cost changes on a wide variety of products that may have been low margin to begin with. Pet-focused de-SPACs with broad goals haven’t fared as well in the markets with Wag (NASDAQ:PET) last closing at $2.42 and Rover (NASDAQ:ROVR) at 3 $.94.

Farmer’s Dog, for its part, has garnered strategic investment from other consumer pioneers along the way. Dollar Shave Club, Sweetgreen Inc (NYSE:SG) and Warby Parker Inc (NYSE:WRBY) all invested in the company’s 2019 Series C and likely told Famer’s Dog management a varied story about the pitfalls of their own ascent.

Sweetgreen is down -30% from its November 2021 IPO price, while Warby Parker opened direct trading at $54.05 per share in September 2021 but last closed at -73% to $14.59. Dollar Shave Club, meanwhile, was sold to Unilever (NYSE:UL) for $1 billion when all was well.

Farmer’s Dog took a different direction in its March 2021 Series D, which saw it reach a valuation of $1.46 billion. CAVU Venture Partners led the $65 million round and co-founders Brett Thomas and Rohan Oza are chairman and co-chairman respectively of HumanCo (NASDAQ: HMCO), which raised $312.5 million in its IPO. in December 2020.

Iconix brand group

Apparel is still a stable market and consumers continue to update their looks after a bit of pandemic hibernation.

Overall apparel sales in the United States are expected to reach $364.7 billion in 2026, with an annual CAGR of 3.9% in between. And, with average prices per unit for clothing lagging far behind inflation, it’s budget players who are likely to see more action. It’s a market that New York-based Iconix Brand Group knows well. It licenses and markets a broad portfolio of consumer apparel brands, including Mossimo, Umbro and Ecko.

Iconix is ​​also a company that understands both sides of the public and private markets, having spent a long time as a public company beginning with a $27 million IPO in 1996 before being taken private by Lancer Capital for $585 million. dollars in August 2021.

He has since taken care of consolidation both internally and externally. It acquired its remaining stakes in its MENA, Europe and Southeast Asia subsidiaries in March and bought back the PONY brand in May. Lancer may still have some ideas about restructuring Iconix’s portfolio, but the company would also have a lot more flexibility to do it itself with public market capital on hand.

Ermenegildo Zegna (NYSE:ZGN) created a mold for apparel SPACs that still looks attractive 10 months after its close with Investindustrial, having last closed at $10.84. Iconix has the potential to be the budget version of that if the deal is structured the right way. Pearl Holdings Inc (NASDAQ:PRLH) could be a perfect fit for the fashion group. Its CEO and chairman Craig Barnett has served as an advisor on mergers and acquisitions for Burberry, among others, and director James Lieber has been a longtime executive at fashion giant LVMH (PA:MC).