Eric’s Top 3 SPAC Targets – Drones

SPACInsider contributor Eric Weidemann this week compiled his three favorite potential SPAC targets among drone technology developers. We look at why they are compelling and why each could be a fit for a blank-check merger.

SPACs have been flying these past few months – some literally – with a number of deals targeting air mobility.

Experience Investment Corp. (NASDAQ:EXPC) touched things off with its December-announced deal for air-taxi operator Blade. Aspirational Consumer Lifestyle (NYSE:ASPL) followed this up by announcing its $2.1 billion combination with private flight marketplace Wheels Up earlier this month. Atlas Crest (NYSE:ACIC) was hot on Aspirational’s tail the next week, announcing its $2.7 billion merger with Archer, which makes electric vertical takeoff-and-landing (eVTOL) aircraft.

All of these SPACs have zoomed up on their announcements and averaged $15.19 at Thursday’s close, with Experience leading the flock at $17.98. Many more deals are reportedly close between SPACs and air mobility players including Joby, Lilium and Volocopter.

While Experience and Aspirational were already on the hunt for high-end consumer targets, air mobility was not an obvious match for Atlas Crest’s management background or stated areas of focus. But just as a wide range of SPACs flocked to the electric vehicle (EV) and automotive technology space once initial deals there traded well, we could be seeing a broader migration of SPACs into the sky (if not orbit, as covered two weeks ago).

But, there are only so many great ready-to-list targets in any given subsector – particularly a brand new one. So, if all the deals and rumors currently in the air come to fruition, SPACs are likely to pivot to adjacencies soon. One that is simultaneously more developed in some ways and potentially more cutting-edge is drones.

Zipline

Some of the future of human air travel is still at the whiteboard stage, but Zipline has been delivering medicine and other critical goods by drone since 2016.

With far less red tape and far greater need for a delivery system that did not rely on local roads, Zipline honed its platform in Africa. It had drones in the air in Rwanda first in 2016, then Ghana, providing remote clinics with supplies via drones it designed and tested in Southern California.

By the time it got the call in 2020 to help deliver COVID-19 supplies to North Carolina-area hospitals, it had a well-oiled system for addressing those needs. It has now made over 105,000 commercial deliveries to date, and has begun a pilot program to test drone deliveries for Walmart within a 50-mile radius of a store.

Many retail giants have announced such pilots with drone-makers, but Zipline may have a leg-up, having obtained a regulatory hall pass for its coronavirus work. The FAA granted it temporary waivers to restrictions on operating unmanned vehicles at night and over populated areas due to the nature of the pandemic emergency.

If Zipline can use this gap in the regulations to demonstrate drone product distribution can be safe and effective, one would think they have a head start on wider approvals and commercial adoption. The company has already signed on to distribute COVID-19 vaccines in parts of both Nigeria and the US, so it has already asserted itself as a cog in the critical infrastructure.

Like any trailblazer, Zipline will not be cheap. It reportedly received a valuation of $1.2 billion at the time of its last capital raise in 2019. Both the company and the world have changed in many ways since then, as the sector is popping off and Zipline has many early advantages. One would think it would take a hefty trust or PIPE to ride a Zipline deal to the landing pad. Afterall, two years is a long time in the life of a company launched in 2014.

If Zipline has indeed multiplied its valuation since that 2019 raise, Social Capital VI (NYSE:IPOF) and its $1 billion trust stand out as an intriguing fit, given Chairman and CEO Chamath Palihapitiya’s penchant for splashy tech deals with a story to tell.

DroneDeploy

With the proliferation of cheap drone hardware, future commercial drones are only going to be as effective as their programing. DroneDeploy has developed a cloud-based software platform for drones being used for mapping and inspections.

It has gained fairly broad adoption in the energy, agriculture and insurance industries as well as engineering, logistics and property management. DroneDeploy notched 259% growth in enterprise use in 2020 and is working to expand abroad as many companies today sport fleets of hundreds of drones and are desperate for software solutions to manage them.

The company’s software has made drones smart and nimble enough to tackle many jobs that were among the trickiest to perform manually such as early crop growth assessments. DroneDeploy partnered with agri-giant Corteva Agriscience (NYSE:CTVA) to beef up this offering and recently became the first third-party company to be allowed to integrate Corteva’s proprietary AI crop assessment tools in its software package.

Corteva itself had been using DroneDeploy to manage its fleet of over 600 drones and this deal could prove a valuable template for other use-cases – leveraging a large client’s in-house software to enhance the platform for all users.

In property management, this synergy has come in cooperation with construction firm Brasfield & Gorrie and robotics firm Boston Dynamics. The latter has integrated Drone Deploy tools with its four-legged land-bound robots to provide 360-degree mapping of work sites and completed properties.

DroneDeploy will also not be a bargain-basket target as it has been able to raise outside funding seemingly at will to the tune of $142.6 million in nine rounds since 2013, including a $50 million series E announced this month.

But, the company cuts across too many of SPACs’ favorite sectors for it to have not attracted their attention. Five SPACs are currently searching for targets in aerospace or aviation, 10 in industrial technology, three in proptech, and 68 in some form of tech, software or mobility.

Skydio

Outraising DroneDeploy thus far is drone-maker Skydio, which packages proprietary hardware and AI tools allowing for autonomous navigation at an approachable price point.

The company’s Skydio 2 model was made available starting last year to both enterprise clients and consumers at a price tag of $999. For the cost of a decent stove, the Skydio 2 sports a 45-megapixel camera compatible for 4k streaming with a 3.5 km-range and a top speed of 36 mph in autonomous mode.

Aerial imaging and data company EagleView has already said “shut up and take my money” with a 5,000-drone order. It will use the fleet to inspect roof conditions at city-wide scales for insurance clients.

The company’s other drone model, the Skydio X2D, is in the final testing phases with drones’ most famous client, the US military. The X2D is designed to be launched by hand and perform nimble close-range reconnaissance with an array of thermal and night-vision imaging for army units in the field.

SPACs would be wise to move quickly with Skydio because a production order from the Pentagon could instantly rocket the company to new heights. Skydio has raised $170 million in outside funding to date, with its last round reeling in $100 million in July.

But, with the company’s aggressive pricing and mass-market potential, there is likely no amount of money that would be too much to pump into its growth. Overall, the commercial drone market is expected to grow at a CAGR of 32% from just $6.5 billion in 2020 to $34.5 billion in 2026 while the consumer drone space is expected to reach $17.5 billion in 2025.

Both of those numbers represent expectations that regulators will continue to be cautious in lifting restrictions on drone usage. But, should the temporary waivers issued during the pandemic turn into broader deregulation, the ceiling on the drone market is officially gone.