Westrock Coffee has completed its SPAC merger with Riverview Acquisition Corp (RVAC) and the merged entity has started trading under the ticker symbol “WEST.” The performance of de-SPACs has been depressing in 2022 and most of them trade below the SPAC IPO price. What’s the forecast for Westrock Coffee stock after the merger and can it hold above the IPO price of $10?
The broader market turmoil has hit both IPOs as well as de-SPACs. The market has been tough and even Bill Ackman had to wind off his SPAC because he wasn’t able to find a lucrative merger target. In many other cases, the SPAC and merger targets have called off the merger, for instance in the case of eToro. Another defining feature of SPACs has been massive redemptions.
Almost three-fourths of RVAC stockholders redeemed their units.
During the merger voting, 73.5 percent of RVAC stockholders redeemed their units. While that may sound high, it was the best redemption result for August, according to the data compiled by SPACInsider. The average redemption rate for the third quarter is above 88 percent.
It isn't tough to comprehend why SPAC stockholders have been redeeming their units before the merger. The average loss from de-SPACs in 2022 is more than 40 percent. In a redemption, stockholders are at least assured of the IPO price plus any accrued interest. Also, a lot of SPACs traded below the IPO price during the merger vote. Therefore, it made perfect sense for stockholders to redeem the units.
Westrock Coffee stock is trading above the IPO price.
Westrock Coffee stock lost 1.8 percent on Aug. 29, which was its first trading day after the merger. Over half a million shares traded hands on the day. However, the negative price action should be seen in the context of the broader market weakness as the S&P 500 also closed in the red.
That said, WEST stock closed the day at $11.30, which is a 13 percent premium over the SPAC IPO price. Not many de-SPACs are trading above the IPO price so Westrock Coffee holding the price level isn't a small achievement. Can the stock continue to trade in double digits? There are fears of a stock market crash in September amid the Fed’s rate hikes and recession concerns.
Westrock Coffee’s forecast looks good.
Unlike most other SPAC mergers, Westrock Coffee isn't a loss-making growth stock or a 2025 kind of story. Such stocks, which unfortunately accounted for the bulk of SPAC mergers, are deep in the red, and in many cases have lost over 80 percent from the SPAC IPO price.
Westrock Coffee went public at reasonable valuations, which is the main reason the stock hasn’t crashed. The company posted revenues of $698 million in 2021, which is expected to rise to $960 million in 2022 and $1.25 billion in 2024. It's posting a positive adjusted EBITDA, which is expected to rise from $47 million in 2021 to $75 million in 2022. In 2024, the company has forecast an adjusted EBITDA of $123 million, which would be 10 percent of its sales that year.
Westrock is both a coffee and an ESG play given its focus on sustainability and traceable supply chains. It works with small farmers across the world and is working on cold brews, which are becoming popular among millennials.
From a valuation perspective, the merger valued Westrock Coffee at a discount to larger peers like Nestle. Given its high growth and focus on sustainability, WEST stock’s forecast looks reasonably bullish even as it would also face pressure if the broader markets plummet.