SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies set to see increased demand among companies standing to benefit in a new US-UK trade deal. We look at why they are compelling and why each could be a fit for a blank-check merger.
The US and the UK began the first real round of trade negotiations this week since the Biden administration took power over a year ago. Britain has prioritized a deal as a part of its post-Brexit economic re-alignment, but the new labor-friendly Democratic administration has been wary of anything called a “free trade agreement.”
US Trade Representative Katherine Tai even said that she didn’t want to “prejudge or predetermine or prescript where these dialogues take us.” But, whether or not the talks lead to a trade agreement by another name, they have already borne some fruit.
The US did agree to roll back Trump-era tariffs on British steel and aluminum as a result of the talks, which has been seen by all as at least a step in the right direction. With North-Atlantic economic unity heightened by cooperation on Russian sanctions, there may still be a breakthrough yet.
This potential casts an interesting light for SPAC teams considering targets in the British Isles as exporters there are likely to benefit more than American ones. The US was already the UK’s biggest export market, accounting for about 15% of UK exports in 2019 before the final transitional Brexit agreement with the EU was signed.
At the time, the EU took in about half of all British exports and this has been falling every year since. For any British company thinking to incorporate a SPAC deal into their pivot towards the US market, the time may be right for both sides to strike before there is dry ink on any future US/UK trade pact.
The US is already Lotus’ top market and the high performance carmaker saw retail sales in the US and Canada surge 111% year-on-year in 2021.
Lotus’ sales look quite a bit different than your average car brand as their overall 24% sales increase in 2021 equated to a total of just 1,710 models sold. But, because Lotuses retail new for between $77,100 and $2.3 million, even that relatively small number of units sold means at least nine-figure revenues and potentially more depending on which models sold more.
Part of the rush of new sales may have been by nostalgics hoping to get their hands on the last version of its models in their current form. Lotus’ 2023 range will be the last one that is powered by internal combustion engines. Moving forward, the company is transitioning to all-electric offerings, but ones that are nonetheless unique within the EV space.
The Lotus brand has long been associated with hyper-light super cars that have crossover models active in the Formula 1 scene. Its first electric model, the Evija, is expected to weigh 3,700 lbs, about 1,000 lbs lighter than a Tesla Model S, with top speeds of 200 mph compared to the Model S’ 162. Lucid (NASDAQ:LCID) models meanwhile top out at 168.
This major production transition will doubtless be capital-intensive and Lotus could well be looked at as a play similar to Lucid Motors. But, unlike Lucid, it has already established its brand presence, production base and pedigree, having been founded in 1948.
Although much of its brand awareness is tied to Formula 1, even this is accelerating in the US with ESPN reporting that the 2021 F1 season was the most viewed on record with 54% more viewers than 2020.
Datacenter hardware-maker SoftIron is one of many companies that is also currently bridging the pond with a headquarters in the UK and major secondary office in the US, and it could be in for a boost with a trade reset.
Demand for datacenter hardware is not just expected to increase in coming years, but those demands are becoming more complex. ESG concerns have pushed datacenters to be greener and denser, so hyperscale builds produced by firms like SoftIron are increasingly in focus.
SoftIron claims it can fit the same amount of storage and transcoding capacity into one data center rackmount that competitors need 64 racks to match. In that reduced space, the SoftIron HyperCast racks would consume maximum 500W of electricity compared to 32,000W for the alternatives.
In a time of heightened cybersecurity concerns, it also provides audits of the provenance of each piece of its hardware, all of which it manufactures in-house. It already has hardware partnerships with a variety of American producers including AMD (NASDAQ:AMD).
The broader trade issues around agriculture and healthcare may be thornier between the US and the UK. But, the Biden administration has been pushing for changes to help ween the US and its allies off of reliance on Chinese and Taiwanese semiconductors and other high-speed data hardware, which would certainly benefit SoftIron, having production on both sides of the Atlantic.
SoftIron itself most recently got a private investment boost in 2020 in the form of a $34 million funding round, which would also indicate its about time for the company to come back to the capital watering hole.
Sustainability? Check. Automation? Check Easing supply chain bottlenecks? Check.
London-based KraftPal makes for an interesting play in global trade in general. Its has raised $127 million in outside funding to date to develop technology to manufacture shipping pallets out of corrugated cardboard using completely automated mini-factories. This effectively produces 52% less CO2 emissions per pallet and consumes about a fifth as much wood as traditional methods. Plus, the pallets themselves are fully recyclable at end-of-life.
But, its business model is not to sell the pallets themselves, which, like shipping containers, get piled up or depleted to the point of scarcity by imbalances in international trade flows. Instead, it sells its automated pallet makers as a full turnkey solution to any company that is moving stuff around.
For partners in North America and the UK, it has preferred to approach these rollouts with JVs, while selling exclusive geographical licenses to partners in other locations. It currently has a number international initiatives where it has lined up partners but not financing, or financing but not partners, but the flexibility of a public listing could make these endeavors far easier to execute. A cash influx might also allow it to tighten up its model and capture more value than it otherwise would through licensing.
Overall, its business model is one that carries with it many SPAC target analogues. It is producing sustainable materials like Origin (NASDAQ:ORGN) and Gores VIII’s (NASDAQ:GIIX) target Footprint. It is also an automation technology player like Berkshire Grey (NASDAQ:BGRY) and Symbotic, which has a pending combination with SVF 3 (NASDAQ:SVFC). By providing companies the machines to generate their own pallets on site rather than rely on those brought in by supply shipments or freight orders, it is also scratching the same itch that saw so many additive manufacturing deals get done over the past two years.
Triangulating the value between these three sectors may be the sort of challenge that would attract FTAC Emerald (NASDAQ:EMLD). Led by serial SPAC leader Betsy Cohen, it IPO’d with $248.7 million in trust and a focus on sustainability in December. Given that its transaction timeline of 18 months is shorter than what the Cohen teams are used to, it is likely keen to get to work on a deal.