Wednesday, August 11, 2021
AeroFarms: Taking Farming to New Heights
Watch the SPACtrac Virtual Roadshow with AeroFarms
Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.
Refer to end of report for Analyst Certification & Disclosures
The Deal. On March 25, 2021 Spring Valley Acquisition Corp agreed to acquire privately-held AeroFarms in a deal that reflects a $1.2 billion post-money equity valuation. There will be $125 million raised in a PIPE and $232 million of cash contributed from the Spring Valley IPO, netting $357 million of cash for AeroFarms, which should fully fund the equity needs of AeroFarms’ growth strategy.
The Company. AeroFarms is a leading company in the emerging field of indoor production of specialty crops. The Company has combined the use of aeroponics (a plant-cultivation technique in which the roots hang suspended in the air while nutrient solution is delivered to them in the form of a fine mist) and vertical growing (layers of crops are stacked on top of each other in indoor grow facilities) to produce a more efficient method of growing leafy greens.
Problems Solved. AeroFarms’ approach solves many of the leading issues today, including feeding a growing worldwide population, water scarcity, the loss of arable land, supply chain inefficiencies, and a growing awareness of pesticide use.
Competitive Advantages. With a 15-year track record in vertical farming, AeroFarms has built significant competitive advantages, including in the areas of technology and data, an expanding retail store network, attractive unit economics, and a pipeline of projects. The Company’s TAM is north of $1.4 trillion.
Virtual Non-Deal Road Show. Noble Capital Markets will be hosting AeroFarms’ CEO David Rosenberg and CFO Guy Blanchard for a virtual non-deal road show this Wednesday August 11th at 11am EST. Following the presentation, there will be a Q&A session. Please visit channelchek.vercel.app to register.
Company Overview
With antecedents dating back to 2004, AeroFarms is a leading company in the emerging field of indoor production of specialty crops. The Company has combined the use of aeroponics (a plant-cultivation technique in which the roots hang suspended in the air while nutrient solution is delivered to them in the form of a fine mist) and vertical growing (layers of crops are stacked on top of each other in indoor grow facilities) to produce a more efficient method of growing leafy greens.
The Deal
On March 25, 2021 Spring Valley Acquisition Corp agreed to acquire privately-held AeroFarms in a deal that reflects a $1.2 billion post-money equity valuation. There will be $125 million raised in a PIPE and $232 million of cash contributed from the Spring Valley IPO, netting $357 million of cash for AeroFarms. Significantly, all existing shareholders, including management, are rolling their equity into the new publicly-traded entity. The business combination is expected to fully fund the equity needs of AeroFarms’ growth strategy, including expanding retail distribution and market penetration, constructing additional farms, introducing future generations of proprietary farming technology and entering new product categories.
Who Is Spring Valley?
Spring Valley was formed in November 2020 as a SPAC targeting a company in the sustainability industry. SV is lead by Chris Sorrells. Mr. Sorrells has been involved in over 30 investments in the sustainability sector. SV has built 11 publicly-traded bellwethers in the sustainability and energy sectors.
Current Challenges and the AeroFarms Solutions
- The Challenge – Feeding A Rising Worldwide Population
Food production will need to increase 69% by 2035 to feed the growing population and expanding middle class
AeroFarms Solution – AeroFarms farms are up to 390 times more productive than a field farm, resulting in significantly more production per area farmed.
- The Challenge – Water Scarcity
Global water demand is projected to increase by 55% from 2000 to 2050
AeroFarms Solution – AeroFarms use up to 95% less water than regular field farms
- The Challenge – Loss of Arable Land
Approximately one-third of the world’s arable land has been lost over the last 40 years
AeroFarms Solution – AeroFarms use as little as 0.3% of the land of a field farmer
- The Challenge – Supply Chain Inefficiencies
An estimated $1.2 trillion worth of food is lost or wasted annually
AeroFarms Solution –Facilities are located near population centers, locally produced food for fresher food and less waste. 58% of consumers prefer to buy local.
- The Challenge – Social Awareness of Pesticide Residues
Pesticide residues remain on 70% of washed produce
AeroFarms Solution – Produce is grown with zero pesticides
Competitive Advantages
1) AeroFarms has a 15-year track record of vertical farming at scale
2) The Company’s technology and data are competitive differentiators. AeroFarms has substantial leads in areas such as aeroponic enabling technologies, lighting, automation, robotics, and genetics, to highlight a few. AeroFarms has over 280 invention disclosures which have yielded 51 issued and pending patents.
3) AeroFarms’ products are currently in over 200 retail stores, and growing, with retail partners such as Whole Foods, ShopRite, amazonfresh, freshdirect, and Baldor.
4) Ability to expand TAM. AeroFarms is targeting the $1.4 trillion global fresh produce industry. The global fresh produce industry is projected to grow at a 7% CAGR through 2023, growing to $1.8 trillion. Leafy greens, AeroFarms’ submarket, is also projected to grow at a 7% CAGR over the time frame growing to $103 billion. And there are longer term opportunities to expand deeper into and outside of the fresh produce space.
5) Attractive unit Economics. Each iteration of the Company’s farm model should deliver improved overall economics. Management projects unlevered IRR to increase from 15% for the current Model 5 farms to 31% for Model 7 farms which will come on-line in 2023.
6) Pipeline of farm projects. The Company recently broke ground on its Danville, Virginia project and has additional expansion opportunities in the pipeline. By 2026, the number of growth towers is projected to increase to 1,248 from 48 in 2021.
Financials
Following is an overview of management’s projected revenue and EBITDA out to 2026 and the projected run rate.
Key Management
David Rosenberg – CEO and co-Founder: Mr. Rosenbereg is a successful serial entrepreneur, having spent over 14 years leading Silicon Valley VC backed companies.
Guy Blanchard – CFO – Mr. Blanchard was appointed CFO in 2016. Prior to Aerofarms, Mr. SVP of Corporate Development for Amonix, MD of Fortress Investment Group, and VP of GATX Capital.
Ownership
AeroFarms’ existing shareholders will end up owning approximately 65% of the combined entity. Spring Valley IPO shareholders will control 18.7%, PIPE investors 10.2%, AeroFarms convertible note holders 2.7%, and 3.5% of the shares will be owned by the sponsor. The following chart highlights the major holders post-merger.
Valuation
AeroFarms is projected to have an $850 million pro-forma enterprise value. This equates to 2.6 times management’s forecasted 2025 revenue and 10.4 times management’s forecasted 2025 EBITDA. This compares to a sustainable high growth peer group average of 4.1x estimated 2025 revenue and 19.6x estimated 2025 EBITDA.
Sources: All data provided by Spring Valley and/or AeroFarms, including financial, ownership, and valuation metrics.
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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Senior Generalist Equity Analyst. Chartered Financial Analyst©. Over 25 years experience as a Generalist Analyst focused in the small to mid-cap space. MBA in Finance from Pace University and a BS in Agricultural Economics from Cornell University.
FINRA licenses 6, 7, 24, 63, 86, 87
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RESEARCH ANALYST CERTIFICATION
Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.
Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public
appearance and/or research report.
Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.
| NOBLE RATINGS DEFINITIONS |
% OF SECURITIES COVERED |
% IB CLIENTS |
| Outperform: potential return is >15% above the current price |
83% |
31% |
| Market Perform: potential return is -15% to 15% of the current price |
3% |
1% |
| Underperform: potential return is >15% below the current price |
0% |
0% |
NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.
Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.
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Report ID: 23816
