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

Over the past few years, few B2B technology subsectors have taken in more private investment than ghost kitchens, and it makes sense given the macro events that those years contained.

Ghost Kitchens are delivery-only restaurants and therefore exist as only the ethereal specter of a restaurant, existing in the virtual world but not the physical one. This has been an increasingly capital efficient way of feeding people both meeting the rising demand of delivery while cutting out the costs associated with paying a waitstaff plus rent and other expenses for a choice spot on a retail thoroughfare.

In what Pitchbook groups as the B2B space, only the cohorts of small satellites, virtual events and sustainable packaging companies saw more ventures raise more capital than ghost kitchens over this time. There are now 176 ghost kitchen players that have raised $26.2 billion.

This investment hit a peak of $11.7 billion in 2020 as the pandemic struck, but also a volume peak of 92 deals in 2021, according to Pitchbook. That pace appears to have slowed so far in 2022 with just 33 deals for $684 million, but that could also provide SPACs a unique opening in the space. Over the past 12 months, ghost kitchen ventures waited on average just 0.9 years between capital raises. So, many of those that closed rounds in 2020 and 2021 may already be hungry for more investment.

CloudKitchens

So, while the notion of ordering food from a ghost kitchen rather than a traditional one may still seem like a B2C exchange, the reality is that much of this market is made up by facilitators helping restaurants or startups get rolling with this new model.

Los Angeles-based CloudKitchens is one such company handling the full process for companies looking to get in on this trend and claims that it can get them up and running in about six weeks with about $30,000 in upfront investment. Its ghost kitchens can be run out of 200 square-foot spaces it estimates can break even in just six months with a 10% profit off of a $1,000,000 run rate.

That is quite a bit different from the economics and roll-out process for a traditional restaurant and CloudKitchens has some partnerships and experience that lend credibility to the offerings. For one, it is led by former Uber founder Travis Kalanick. With him comes not only experience in building a disruptive business, but also plenty of capital ties.

Having raised $1.75 billion to date, CloudKitchens has secured a $15 billion valuation, which in and of itself would make it the kind of mega deal that the SPAC market has not seen in quite a while. It would likely make for the largest deal in terms of enterprise value since the $20 billion Gores Guggenheim (NASDAQ:GGPI) September deal with Polestar if not LionHeart II’s (NASDAQ:LCAP) July-announced $32.6 billion deal with MSP Recovery.

The other side that should give investors something to think about is the fact that CloudKitchens is taking on almost a WeWork role in owning the real estate, re-designing it for kitchens and renting it out for this specific purpose. Like WeWork, this could leave CloudKitchens holding more of the bag than investors may want, but if the company is disciplined in that approach, it could provide its own value opportunities.

All Day Kitchens

For a less than $15 billion+ option, All Day Kitchens may be the play, but it also comes with Uber ties. Back in 2019 both the product head at Uber Eats and the Opendoor co-founder JD Ross joined in on its Series A round.

That DNA continues to run through All Day but it may represent a slice of the market that has a more predictable pot to skim from. The big names in food delivery have already begun rolling up individual ghost kitchens with Uber’s acquisition of David Chang’s Ando in 2018 and Deliveroo’s (LON:ROO) tuck-in of popular Manhattan-based Maple even earlier.

It also uses its existing facilities in the San Francisco Bay area, Dallas and Chicago to offer its own layered services. These include help with settling logistical issues as well as advising restaurants on how to adjust their menus to optimize for delivery.

For some restaurants, “going ghost” doesn’t necessarily have to be a brand-wide strategy but can also be a means of expanding delivery reach at lower cost. National ice cream brands Jeni’s and Van Leeuwen use All Day while others have used it as anchoring the equivalent of a pop-up in new markets.

Rebel Foods

While CloudKitchens and All Day don’t lay out the full economics of what their relationship with clients on the table, Rebel Foods does. It has approached ghost kitchens with a franchise model and charges its client restaurants a fixed license fee for three years followed by 3% royalty fees and a $0.15 fee per transaction.

With this model, it is already present in 10 countries with 450 operating kitchens holding about 4,000 active “internet restaurants.” Rebel has also demonstrated that the ghost kitchen model is not only a fit for Western cities as it has grown out of its base in the dense markets of India.

The Mumbai-based company has turned this platform into both a source of passive income and also an accelerator for brands it sees particular promise in. Earlier this month, it bought a controlling stake in luxury chocolate brand SMOOR, and has earmarked $150 million for other acquisitions.

Even putting the potential cash proceeds of a SPAC deal to the side, Rebel Foods could significantly step up its M&A plans with the flexibility that a public listing would bring. It has already locked in a valuation at $1.4 billion, but has gradually scaled up through 13 equity raises since 2011, leaving a fair amount of investors that likely wouldn’t mind a liquidity event.

The company could potentially entice plenty of tech-focused SPACs with a rebellious streak. But, Northern Star IV (NYSE:NSTD) stands out as an attractive fit for both sides with a $400 million trust raised without overfunding and only 1/8 warrants attached to the units.