Northern Star Acquisition (STIC), a SPAC (special-purpose acquisition company), saw its stock gain 0.5 percent on March 19. However, the stock is down 42 percent from its 52-week high. What’s the forecast for STIC stock before the SPAC merges with BarkBox? Will STIC rise or continue to fall?
The STIC SPAC is scheduled to merge with BarkBox, a leading subscription service provider of dog products and services, to take it public. The blank-check company is led by CEO Joanna Coles and COO Jonathan Ledecky. STIC and BarkBox are expected to merge in the second quarter of 2021.
The STIC-BarkBox merger date isn’t final
The STIC-BarkBox merger is expected to close in the second quarter of 2021. The transaction, subject to approval by STIC shareholders and other customary closing conditions, is set to have a pro forma enterprise value of $1.64 billion. A merger voting date hasn’t yet been set. BarkBox will list on the NYSE under the ticker symbol “BARK”.
As part of the merger with STIC, BarkBox will get gross cash proceeds of $454 million to fund expansion initiatives. The proceeds will include a PIPE (private investment in public equity) of $200 million and an additional $254 million in cash held by STIC in trust. Existing BarkBox shareholders are set to own 74.3 percent of the combined entity when the deal closes.
BarkBox versus Chewy
Founded in 2012, BarkBox offers dog toys, treats, accessories, food, and dental products. Currently, the company has around 1.1 million active subscriptions. BarkBox expects to generate sales of $369.2 million in fiscal 2021 (ended Mar. 31) and forecasts its sales growing by 39.7 percent in fiscal 2022 and 36.9 percent in fiscal 2023. The company expects to be core-adjusted EBITDA positive in fiscal 2021. BarkBox projects a gross profit margin of 60 percent in fiscal 2021.
BarkBox faces competition from Chewy, which went public in 2019 at $22 per share. Chewy, an online pet retailer, is expected to report sales of $7.1 billion in fiscal 2021 (ended Jan. 2021) and $8.8 billion in fiscal 2022. In fiscal 2019, Chewy reported sales of $4.85 billion, and a gross margin of about 23.6 percent.
STIC’s stock forecast
STIC’s stock forecast is based on BarkBox's outlook. The company’s addressable market size in the U.S. is massive, with just 1 percent of 80 million pet families subscribing to BarkBox. American Pet Products Association estimates that in 2020, around $100 billion was spent on the pets in the U.S.
STIC valued BarkBox at a pro forma implied equity value of $2.02 billion. Meanwhile, at STIC’s current stock price, BarkBox is valued at around $2.29 billion. In comparison, Chewy and Freshpet have market capitalizations of $34.1 billion and $6.5 billion, respectively.
In BarkBox's merger announcement presentation, it provided a comparison with its rivals. Its 2021 EV-to-sales multiple is 3.5x, which looks attractive compared wit other key pet suppliers' multiples: Chewy’s and Freshpet’s are 4.4x and 13.5x, respectively. BarkBox's 2022 EV-to-sales multiple is 2.5x, whereas Chewy’s is 3.7x.
Between 2020 and 2022, BarkBox expects its revenue to grow 41.2 percent compounded annually. Chewy’s and Freshpet’s is expected to grow 22.5 and 26.8 percent, respectively.
STIC SPAC stock is a good buy
Based on its valuation and growth outlook, BarkBox looks like a good deal, and the fall in STIC stock could be a buying opportunity. The correction has brought BarkBox’s valuation in line with its future prospects. However, the stock is a speculative bet until the STIC-BarkBox transaction closes.