AeroFarms (ARFM) is going public through a SPAC merger with Spring Valley Acquisition (SV). SV stock has pulled back significantly from its 52-week highs and the transaction is expected to close soon. Will SV stock go back up after the AeroFarms merger date?
Founded in 2004, AeroFarms is a vertical farming startup. The company produces plants and vegetables outside the typical growing seasons by using artificial light and heat.
The SV and AeroFarms merger date
The business combination was approved by SV shareholders on Aug. 30. The transaction is expected to close on or before Sept. 24. After the merger is complete, AeroFarms’ common stock and warrants will start trading on Nasdaq under the ticker symbols “ARFM” and “ARFMW,” respectively.
What's happening with the SV and AeroFarms merger?
The minimum cash requirement under the SV and AeroFarms merger agreement hasn’t been met due to high redemptions by SV public shareholders. SV and AeroFarms are now looking for new funding sources, which must be acceptable to both parties. It's anticipated that existing AeroFarms insiders will contribute a large percentage of the additional capital. Also, it's anticipated that the investment into the combined entity will be on the same terms and conditions as offered to existing PIPE investors.
The merger deal will be backed by a $125 million PIPE investment at $10 per share from leading institutional investors and Pearl Energy Investments, among others. There isn't a guarantee that additional funds will be raised or that the merger deal will get completed.
AeroFarms stock’s forecast
Currently, AeroFarms stock is being tracked by just one Wall Street analyst, who has given the stock a buy recommendation and a target price of $20. The target price represents nearly 101 percent upside potential from the current price.
SV has assigned AeroFarms a proforma implied equity value of $1.2 billion and an enterprise value (EV) of $856 million. This would give us 2025 EV-to-sales multiple of 2.6x and an EV-to-EBITDA multiple of 10.4x. To compare, Freshpet and AppHarvest are trading at NTM EV-to-sales multiples of 10.3x and 43.8x, respectively.
Will AeroFarms stock go up after the merger?
Immediately after the merger, AeroFarms stock might fall like a lot of other SPACs. This is mainly because the market hasn't favored growth stocks and SPACs over the last few months.
In the medium to long term, the prospects for AeroFarms stock look promising. Vertical farming is essential to help reduce world hunger and restore forests that have been depleted by commercialized agriculture. AeroFarms has over 15 years of experience in large-scale vertical indoor farming. The company has an expert management team that’s transforming the farming industry. AeroFarms already has a significant retail presence with its DreamGreens brand of vegetables.
AeroFarms expects to post revenues of $4 million in 2021, which it expects to gradually rise to $163 million in 2024 and $553 million in 2026. The company also expects to break even on the EBITDA in 2025. It's forecasting the EBITDA to rise to $193 million in 2026 and expects the EBITDA margin at 35 percent in the year.
AeroFarms thinks that the total addressable market size for fresh produce is expected to be worth $1.8 trillion by 2023. While the company anticipates significant growth, its own projections should be taken with a pinch of salt.