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Top 3 SPAC Targets – Consumer/Retail
by Nicholas Alan Clayton on 2022-10-07 at 7:41am

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among consumer and retail companies. We look at why they are compelling and why each could be a fit for a blank-check merger.


As fun as it was in 2020 and 2021 when SPACs were saving the world with their investments in EVs and green power, it’s clear that for now, SPACs need to be focused on providers of the stuff that people will buy no matter what shape the world is in.

In addition to being a sector populated by generally safe and cash-generative businesses, there is also currently a larger disconnect between their price-to-earnings in the public markets. Earnings by consumer staples have been on a +73% tear over the last three years, but the market cap of listed consumer staples companies has only increased +12% over the same period. This has even under-paced revenues across the space, which have grown by +26%.

For consumer companies that are ready for a step-up and would rather remain independent, this would indicate that a straight IPO is not going to be the way to go. Year-to-date, the five consumer goods companies that have IPO’d are down -57.5%. Had these firms instead opted for SPAC deals, they could have at least lined up earn-out provisions that would have locked in upside value for when the market turns up again.

Lipari Foods

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

The Warren, Michigan-based company is a grocery goods distributor focused on the Midwest and East Coast of the US and has vertically integrated both upstream and downstream on the food value chain. Upstream, it owns manufacturing facilities in four Midwestern states producing food products ranging from candies, to deli meats, cheese, noodles, and jams. In 2019, it added a new roughly 20,000 square-foot plant near its Michigan headquarters.

Downstream, the company owns 24 proprietary consumer brands to bring products to shelves where it has the opportunity to take the full wholesale take on sales. All of this allows it to gain a major take on the operations it deems as core and a relatively passive one distributing as a third party for other clients.

This is essentially the playbook for US Foods (NYSE:USFD), which skews more towards restaurants than grocery stores, but otherwise has a comparable business model to Lipari. US Foods trades at 14x EBITDA and has moved within a narrow range relative to the wider market with a 52-week high of $39.73 and a low of $26.08, which more or less matches its five-year volatility.

Lipari was acquired by private equity firm HIG Capital in 2019 at a time when it had about $1 billion in sales. The same group has a SPAC in circulation 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 de-list its warrants and may not extend its October 23 transaction deadline. Nonetheless, the contact with the wider SPAC network is likely to benefit Lipari’s ability to get a deal done.

The Farmer’s Dog

The food spending that is perhaps growing the fastest is that directed at our furry friends. In 2021, Americans spent $50 billion on pet food, representing 13.5% year-on-year growth.

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

Farmer’s Dog’s focus on nutrition and health is a key fit for aging Millennials and Gen Zers coming into adulthood who have placed a greater emphasis on the topic as consumers than preceding generations. And, the company’s tight focus on food may help it avoid some of the complexity of broader pet products ecommerce players.

The New York-based company of about 300 employees delivering millions of pet meals monthly only has to focus on the food supply chain, while broader pet retailers have to contend with shifting costs on a broad variety of products that may have been low-margin to begin with. Pet-focused de-SPACs with wide focuses have not 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 collected strategic investments from other consumer pioneers along the way. Dollar Shave Club, Sweetgreen (NYSE:SG) and Warby Parker (NYSE:WRBY) all invested in the company’s 2019 Series C and have likely told Famer’s Dog’s management a varied story about the pitfalls of their own rise.

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

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

Iconix Brand Group

Apparel is still a steady market, and consumers are still updating their looks after a bit of pandemic hibernation.

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

Iconix is also a company that understands both sides of the public and private market tracks, 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 in August 2021.

It has since been busy consolidating both internally and externally. It acquired its remaining interests in its MENA, Europe and SE Asia subsidiaries in March and bought out the PONY brand in May. Lancer may still have some ideas about restructuring the Iconix portfolio, but the company would also have much more flexibility in doing so itself with public market capital at its fingertips.

Ermenegildo Zegna (NYSE:ZGN) set a mold for apparel de-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-range version of this if the deal is structured the right way. Pearl Holdings (NASDAQ:PRLH) could be a right fit for the fashion group. Its CEO and Chairman Craig Barnett has served as an M&A advisor for Burberry among others and Director James Lieber was a longtime executive at fashion giant LVMH (PA:MC).

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