In this series we’ll be examining successful SPAC deals from the past both in the terms and circumstances of their de-SPAC processes and how they have weathered the storms that have followed after their public listings with research from SPACInsider contributor Anthony Sozzi.
With the current SPAC count and market conditions, it’s not easy to get a deal done, which is why look-backs to sparser times in SPAC world can be interesting. It’s also tempting to say that before the current cycle, a SPAC could combine with potato chips and cheese balls and be successful. So, let’s look at that deal and why it continues to buck trends.
Consumer SPAC deals have been hard to get right in general. Only seven of the 48 consumer de-SPACs (14.5%) are currently trading above $10 as the market has been hit by an unrelenting series of disruptions.
The hit rate was better when SPAC deals were rarer overall and we’ve looked at some of the signature deals from before the latest SPAC cycle. But, even then, the rate of undisputed winners was only slightly higher with four of the 22 consumer deals that closed between 2015 and 2020 last closing above IPO price. That’s 18.2%, and that cohort are all deals that we have featured in this column before – Simply Good Foods (NASDAQ:SMPL), Hostess (NASDAQ:TWNK) and OneSpaWorld (NASDAQ:OSW).
It thus seems only fair for SPACInsider to visit the fourth, Utz Brands (NYSE:UTZ), as the third best-performer of this group and 16th of the 465 SPAC deals closed since 2013 across all sectors. So, why was a 100-year-old packaged pork rinds and potato skins company generating 260% returns for SPAC investors at their height and still standing on the dais among the best deals of the SPAC decade?
The simple answer may have been right-sizing from the start and the notion that fundamental investors will follow strong fundamentals where they appear. Between 2010 and 2019 salty snacks were outpacing nearly all CPG categories in growth at 4.3% CAGR. In Utz’s case, this sales increase continued unabated at an 8% CAGR through two recessions before the deal, and seemed likely to be a nice, crispy pocket to park cash in heading into the COVID-19 disruptions.
Collier Creek approached the deal as the fifth largest SPAC IPO of 2018 out of 46, raising a total of $440 million at IPO with a 24-month window and a 1/3 warrant in its units. What it offered Utz beyond a listing was an operational expertise in the form of CC Capital Managing Directors Chinh Chu and Jason Giordano along with Chairman Roger Deromedi, who had formerly chaired Pinnacle Foods and Kraft (NASDAQ:KHC).
It valued Utz at 11.6x EBITDA and 0.59x revenue, which was a price tag the market not only validated but boosted with harder snacking times to come.
Collier Creek had both the brawn of capital and the brains to provide operational value post-close. But, the team also benefited from some environmental perks as well. It was already trading well above trust value on the eve of the deal’s announcement at $10.90 and $10.77 the week before.
This was clearly not all due to the rumors the deal seeping out early as it took its major pre-close jumps after announcement. At the end of the day after announcing the deal, Colliers Creek was at $12.75 and this continued to rise towards its completion. By the time the deal had reached the end of the process in August 2020, it was at $16.34.
Since then, the combination has lived up to its billing, outpacing its projected revenue at announcement for 2020 and 2021 while beating EBITDA estimates in both years as well. This positive momentum defeated any effect of Utz calling its 11,400,000 SPAC warrants in January 2021. During this time, Utz’s stock actually continued to rise.
Two weeks before Utz announced the warrant redemption on December 1, 2020 the stock closed at $19.13 and on the day the window closed in January 2021 Utz was up to $23. This was coincidentally close to its peak, which would be set at $30.03 in May of that year, and it wavered little from its perch above $20 during this period.
It wasn’t only a good deal for the warrant holders, however. The deal terms subjected 2,000,000 of Collier Creek’s promote shares (18.2%) to earnout provisions that were easily met, tied to the combined company achieving a three-day VWAP at or above $12.50 and $15.
Although the de-SPAC has outpaced many of its buzzier retail stock peers, 83% of Utz’s equity is still held by 249 institutional investors, according to Yahoo. They may not have been trying to reinvent car travel, but the company behind the salt and vinegars next to one’s trading rig was generating real value. It continues to do so with average dividends of 1.38%. It incrementally increased this 5.5% in December.
The company has not rested on its laurels to be a stockholder cash machine either. It has notched five major acquisitions since the deal and last year cut the ribbon on a new 200,000 square-foot North Carolina manufacturing facility.
The transaction continues to keep its SPAC team high in the pantheon as well. Chinh Chu, who has continued on as a serial SPAC executive ranks 10th among SPACInsiders Serial Sponsors with four deals generating an aggregate +0.9% return in this trying market. Utz is the jewel of its crown, but CF Corporation’s 2017 target FGL was also acquired by Fidelity National (NASDAQ:FNF) for $12.50 per share in 2020.
Companies looking to go public with actual EBITDA figures in their pocket may not be as common as in the past, but Chinh Chu is still among those still looking for them. He serves as CEO of CC Neuberger III (NYSE:PRPC), which has a transaction deadline coming up on February 3, but it has already filed for an extension vote, indicating it aims to fight on.