‘Blank check’ investors eyeing food and beverage opportunities | 2021-01-20

Will Kreznick

KANSAS CITY — Special purpose acquisition companies (SPACs) reemerged in 2020 and are on track to remain a popular investment tool to raise capital in 2021 and beyond. The instruments are attracting investors seeking opportunities in food and beverage. SPACs are corporations designed to take companies public without going through […]

KANSAS CITY — Special purpose acquisition companies (SPACs) reemerged in 2020 and are on track to remain a popular investment tool to raise capital in 2021 and beyond. The instruments are attracting investors seeking opportunities in food and beverage.

SPACs are corporations designed to take companies public without going through the traditional initial public offering (IPO) process. They are created specifically to pool funds to finance a merger or acquisition opportunity within a set timeframe, usually two years.

In 2020, US-based SPACs raised $82 billion, more than a six-fold increase from the year before, according to The Wall Street Journal. Low interest rates have contributed to making the equity investment tools appealing to investors since returns investors expect from assets like government bonds have become negligible.

The most recent high-profile SPAC in the food and beverage industry was one involving Utz Brands. In August, Collier Creek Holdings, a SPAC, combined with Utz Quality Foods, LLC to form Utz Brands, Inc., which began trading on the New York Stock Exchange on Aug. 31.

Collier Creek Holdings was formed in 2018 and raised $440 million. It was co-founded by Roger K. Deromedi, Chinh E. Chu and Jason K Giordano. Mr. Deromedi was the former chairman of Pinnacle Foods and the former chief executive officer of Kraft Foods. Mr. Chu and Mr. Giordano are senior managing directors of CC Capital, a private investment firm.

Utz Brands closed at $18.40 per share on its first day of trading. Since, the stock has appreciated solidly, closing at $23.18 on Jan. 13.

The influx of capital has benefited Utz and allowed the company to grow through several acquisitions. Since starting to trade publicly, the company has acquired Truco Enterprises, a manufacturer of tortilla chips, salsa and queso; the Vitner’s snack brand from Snak-King Corp.; and H.K. Anderson, a brand of peanut butter filled pretzels.

Parallels may be drawn between acceleration in food and beverage venture capital investing and the emergence of SPACs. Many venture capital investors targeted startups across a variety of food and beverage categories, but investment groups targeting specific sectors, including plant-based, sustainability or animal free, quickly emerged.

SPACs are gravitating in a similar direction. The Natural Order Acquisition Corp., New York, in November raised approximately $230 million. The SPAC is seeking to combine with businesses selling technologies and products related to plant-based foods and beverages, alternative protein and other alternatives to animal products.

In August, the FAST Acquisition Corp. was formed and sought to raise as much as $200 million to combine with hospitality or restaurant businesses. In Paris, 2MX Organic began trading with $360 million under management and is focused on combining with organic food and beverage businesses in the European Union.

While they are popular, SPACs have not escaped criticism and have yet to demonstrate benefits broadly for investors. Writing in The Wall Street Journal, Michael Klausner, a professor at Stanford Law School, and Emily Ruan, a San Francisco-based management consultant, said a study of SPAC mergers completed between January 2019 and June 2020 showed that, on average, they lost 12% of their value within six months. In contrast, the Nasdaq rose roughly 30% during the same period.

When it comes to any investment, as always — caveat emptor. SPACs are trendy instruments to raise investment capital today, and it’s a positive sign food and beverage is considered a sector ripe with opportunity. 

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