SPACInsider contributors Anthony Sozzi and Nic Narang this week compiled their three favorite potential SPAC targets among potential targets leveraging AI technology. We look at why they are compelling and why each could be a fit for a blank-check merger.
Artificial intelligence and machine learning have been giving an edge to technology tools for years. In fact, if anything, the two terms have likely become over-used by any software firm that has a bit of automation and algorithms in their tech.
But, the real potential for AI is now being increasingly felt, especially as it has gained in complexity and accuracy in ingesting written information. AI can now somewhat believably chat with you, paint you a picture and maybe pass your law school exams. Want to send HBO’s latest hit back to the 80’s or listen to Eminem rap about it’s hard out there for a 2nd-century warlord? AI, strangely, now has you covered.
These examples are silly, extreme, and of questionable value, but businesses have been pumping serious money into AI services that allow them to work more accurately or reduce headcount.
And for all of the applications that continue to seem niche or far-fetched, there are plenty that already count a large portion of the Fortune 500 among their clients.
AlphaSense may be the most emblematic example of this among private companies, to the extent that many reading this may already be familiar with the service.
It provides searchable financial information on public and private companies, with AI-engines pulling in financially relevant information and stripping that away from the noise. Its founder and CEO Jack Kokko describes its mission as being a Google for finance and finance only.
To help sharpen that focus, AlphaSense acquired Stream in 2021 to integrate its archive and ongoing collection of equity analyst interviews that it could pull apart and file as insights attached to their relevant companies. And while simple search engines have proven to be a dime a dozen, AlphaSense’s partners have repeatedly reinforced the value they see in it, with Mizuho Capital (NYSE:MFG) and Goldman Sachs (NYSE:GS) participating in its past two rounds.
These brought it to a post-money valuation of $1.7 billion when its latest Series D closed in June 2022. But its utility has been validated by customers as well as investors. It currently counts 85% of the S&P 100, 75% of top asset management firms and the 20 largest pharmaceutical companies among its clients.
It reportedly brought it more than $100 million in revenue in 2021 after more than doubling its total customer base. With those numbers to go on, this last private round valued it several times higher than Alphabet (NASDAQ:GOOG) trades today, but this legacy player doesn’t have the trajectory to match.
Kokko lightly dodged the question of whether it had any near-term listing plans when speaking with NYSE Floor Talk four months ago, but this is unlikely to be a show that the company would hop on without wanting to put out feelers. The IPO window may still be mostly jammed shut, but an audacious SPAC could likely craft a deal to fit its needs.
And, AlphaSense has a deep enough rolodex of customers and investors to make a PIPE raise significantly easier than your average tech firm.
Doctors need to be thinking faster though too.
Tempus Labs’ library of molecular and clinical data is attached to an operating system that provides genomic sequencing and can analyze molecular and therapeutic data to inform real-time decisions by physicians. In layman’s terms, this platform helps doctors get to the right dosage or particular personalized treatment for cancer and other ailments much faster.
In the past, much of this work was covered by a trial-and-error “take two and call me in the morning” process.
Tempus’ scale has also been accelerating. Now, about 90% of the top 20 pharmaceutical oncology companies work with Tempus and 40% of individual oncologists in the US are clients. Overall, about half of academic medical centers in the US are also connected to the platform and Tempus data is backed by the de-identified medical records of about 6 million patients to help in its modeling.
This has been somewhat dicey terrain in past SPAC deals, however. GeneDx (NASDAQ:WGS), which was known as Sema4 before its combination with CM Life Sciences in 2021, has dropped below $1 as it expects to hit free cashflow positivity in 2025 – not something the current market sentiment wants to hear.
But, the five genomics de-SPACs of the past 10 years have faired better on average and if Tempus were to go to market with a business model aimed at getting to profitability faster, it may be in for a warmer reception. To date, it has had success collaborating with major pharma firms like GSK (NYSE:GSK), which paid it $70 million in October as an initial payment to extend their cooperation over the next three years.
Overall, Tempus could be a good fit for a combination with Healthwell Acquisition Corp. I (NASDAQ:HWEL), which raised $250 million in its August 2021 IPO and still has until August 5 of this year to complete a deal under its current deadline. The SPAC also went public with a forward purchase agreement in hand from the Peterson Partners to purchase $4 million units for $10 per unit.
If SPACs were to return to the realm of the megadeal and choose AI as their venue, Faire would likely to be the target.
With the growth of Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) as leviathans, Faire has attempted to step up as the ecommerce platform geared towards lower-volume independent producers that would potentially be swallowed up by the onerous terms of the major marketplaces.
While marketplaces like Amazon hold the cards in terms of which products get promoted by the algorithm – generally a race to the bottom on price – Faire has put its AI tools in the hands of producers to help them more effectively target buyers landing on the site. Faire’s buyers are also more likely to be business clients rather than consumers.
Much of its sales volume is wholesale from creators to retail stores. That has given more opportunity for a fine-tuned marketplace that is less determined by sellers shelling out for featured placement and banner ads, and more guided towards businesses finding the right sales channels.
Despite having been founded in just 2017, it has run 11 funding rounds and most recently achieved a $12.5 billion valuation after increasing its total outside funding to $1.4 billion with a Series G in May 2022. This was a round that was extended twice over seven months on a “flat” basis according to TechCrunch, suggesting it is a company both hungry for growth capital and full of VC shares that wouldn’t mind liquidity.
That is not to say that investors have cause to bail, however. Faire reportedly crossed over $1 billion in sales volume in 2021 and now counts 600,000 retailers on its platform. For a SPAC of scale, it could represent an enterprising opportunity to make a mark – particularly with only two deals so far announced in 2023 with enterprise values above to $1 billion mark.
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