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SPACtrac Report – AeroFarms: Taking Farming to New Heights

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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

  1. 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. 

  1. 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 

  1. 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 

  1. 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.

  1. 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.

GENERAL DISCLAIMERS

All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results.

Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.

IMPORTANT DISCLOSURES

This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report.

The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.

The SPAC Company in this report is a participant in the Company Sponsored Research Program (CSRP); Noble receives compensation from the Company for such participation. No part of the CSRP compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed by the analyst in this research report.

Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months

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

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc.

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.

Noble Capital Markets, Inc.
225 NE Mizner Blvd. Suite 150
Boca Raton, FL 33432
561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)

Report ID: 23816

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