Soaring Eagle Acquisition (SRNG) and Ginkgo Bioworks announced their merger in May. The merger is expected to be completed in the third quarter of 2021. According to the merger deal, Ginkgo Bioworks will receive $2.5 billion in gross proceeds to pursue its growth plans. The cash includes $1.7 billion held in trust by SRNG and $775 million in PIPE. The deal valued Ginkgo at $17.8 billion. The company's pro forma EV is close to $15.2 billion. Many people want to know if SRNG stock is undervalued before its merger with Ginkgo.
Ginkgo Bioworks is a Boston-based biotech company whose platform is used in biotechnology applications in several industries including chemicals, pharmaceuticals, and agriculture. The company is also actively supporting a number of COVID-19 response efforts, including K-12 pooled testing, vaccine manufacturing optimization, and therapeutics discovery. The company plans to become the Amazon Web Services of synthetic biology.
Is Ginkgo undervalued?
Based on the deal details, Ginkgo has an EV of $15.2 billion. The company is projecting sales of $150 million in 2021. Based on this, its EV-to-2021 sales multiple is 101.3x, which is steep. The multiple for 2024 is 24.2x, which seems a bit reasonable. Ginkgo estimated the median 2024 multiple for growth life sciences companies to be 18.7x.
While Ginkgo might look overvalued, it has a lot of growth potential that might help justify its valuation. Another important thing to note is that its revenues don't include downstream values like royalty payments or equity, which could become a sizable portion going forward. If we include the company’s estimated NPV value of $345 million for 2021 and $4 billion+ for 2024, the multiple might even start to look overvalued.
From 2021 and 2024, Ginkgo expects its revenue to grow 84 percent compounded annually. It expects to turn adjusted EBITDA-positive in 2025, and foresees an adjusted EBITDA of $166 million in 2025. The company thinks that its addressable market is worth $40 billion.
Is Ginkgo a good investment?
In November 2020, Ginkgo received a $1.1 billion loan from the U.S. International Development Finance Corporation to optimize its COVID-19 vaccine manufacturing and research efforts, which adds credibility to its business proposition.
McKinsey estimated the market for bioengineered products is between $2 trillion and $4 trillion in a 2020 report. This technology can be applied to a large number of industries, which increases its scope and adoption cases.
Ginkgo's potential is huge since it also takes royalties or equity in the biological apps developed on its platform. Ginkgo estimates that drug research and manufacturer companies will spend about $40 billion on biotech R&D work, which could be accelerated on Ginkgo’s automated platform. The company also aims to expand the number of new biological program customers on its platform from around 20 now to 500 plus by 2025.
Many fund managers, including ARK Invest’s Cathie Wood, see genomics as one of the two big investing themes for the future. Wood's funds are invested in Ginkgo. Baillie Gifford is also backing Ginkgo Bioworks. The conviction of these high-profile investors also inspires confidence in the company’s investment thesis. SRNG stock hasn't moved much and is currently trading close to its list price, which gives investors an opportunity to enter this long-term play at a reasonable price.