This Toronto SPAC Looks to Fight Food Scarcity and Profit in the Process

By Will Ashworth

• Agrinam Acquisition Corp. (AGRI.U) looks to Boston-based Freight Farms to bring home its SPAC combination.

• The total addressable market is $172 billion worldwide. 

• Its price-to-sales ratio of 3.8x 2024 revenue is reasonable. 

Investors rarely get a special purpose acquisition company (SPAC) that combines with a legitimate game-changer, even less so when talking about a blank-check company listed on the Toronto Stock Exchange (TSE). 

However, on Oct. 4, Agrinam Acquisition Corp. (AGRI.U) might have done just that, announcing that it was combining with Freight Farms Inc., a Boston-based provider of modular container farming technology.

For a Toronto-traded SPAC to look across the border for a target piqued my curiosity. As the Globe and Mail noted last year, “Canada has produced many cutting-edge agtech companies, but the country lags the U.S. in financing and developing technologies that can improve farm yields, slash emissions.”

Freight Farms was founded in 2013. It was the first to launch a vertical hydroponic farm inside an intermodal shipping container. While homes built from shipping containers are well known, I was surprised to learn that container farming has become all the rage. 

Since its founding, Freight Farms has sold more than 600 modular container farms to 154 customers in 40 countries worldwide. The sky is the limit for this technology-enabled business. 

Here’s why to consider it. 

Potential Market Is Tremendous

The controlled-environment agricultural (CEA) total addressable market is estimated to be $172 billion (all figures in U.S. dollars unless noted otherwise) by 2025. 

The company’s first product, Greenery, has a serviceable obtainable market (SOM) of $12 billion. (See video below) The company’s smaller, less-costly product, Garden, has a U.S. SOM of $8 billion. With a $58,000 price tag, it provides customers with a lower barrier to entry into container farming. 

The unit cost for Greenery is 2.4 times more expensive than Garden at $136,000. However, it has twice the capacity, with the potential of generating approximately $140,000 in annual revenue, with a 65% earnings before interest, taxes, depreciation and amortization (EBITDA) margin, 2-3x higher than its competitors. 

How much capacity does the Greenery model have? It grows approximately the same amount of produce as a 2.5-acre farm field, for example, producing 1,000 heads of lettuce per week, all within a 40-foot container.

Freight Farm’s estimated 2023 revenue is $22.4 million, approximately 12x its 2019 sales. By 2025, that figure should be $60 million. It costs the company roughly $7,000 to acquire a customer. With a gross margin of 20% on the units, it’s understandable why it is currently losing money on a GAAP basis. 

However, its Farmhand software generates $200 monthly in recurring revenue from its Greenery container. The gross margin on this revenue is 75%. As the number of farming containers grows, Freight Farms’ revenue growth will stabilize. The same situation applies to its Farmhand nutrient kits.

Competitive Multiple vs. Agtech Peers

The business combination values the new Freight Farms’ market cap at $147 million and an enterprise value of $127 million. That’s 3.8x its 2024 estimated revenue of $33.7 million, a relatively competitive multiple with its Agtech peers. 

If all goes according to plan, the combined entity will have a net cash of $20 million on its balance sheet when the transaction closes in Q1 2024. The cash includes an estimated $11 million from a private investment in public equity (PIPE) before close. 

Freight Farms shareholders will own 54% of the merged entity, with Agrinam shareholders collectively at 19%. Agrinam’s sponsor is Agrinam Investments LLC at 17%, PIPE investors (7%), and convertible note investors (3%). 

It’s been a while since I’ve covered a SPAC. 

Agrinam did its initial public offering in June 2022, pretty much following the blank-check playbook. 

It sold 13.8 million Class A restricted voting units at $10 each. At the same time, $4.14 million in funding warrants were issued to the SPAC’s founders. The proceeds were deposited into an escrow account to be held until a qualifying transaction was completed, per usual.

A unit consisted of one Class A restricted voting share, one warrant to purchase a Class A restricted voting share for $11.50, and one right to receive one-tenth of one common share. The Class A restricted voting shares would be converted on a one-for-one basis into common shares upon completion of the qualifying transaction. Its Class B shares -- which gave the founders 20% of the SPAC’s stock -- would be converted on a 100-to-one basis simultaneously. 

To ensure the SPAC could complete the qualifying transaction, the company held a special meeting on Sept. 14 to vote on an amendment allowing it to extend the 15-month qualifying period to 18 months and section extension from 18 months to 21 months. 

The company would be required to pay $400,000 into escrow for the first extension from September to December and another $400,000 for a second, three-month extension. 

As a result of the vote, 11.26 million Class A restricted voting shares were redeemed on September 29 at $10.47 a share for gross proceeds of $117.92 million. 

The redemption explains the small amount of cash in the combination with Freight Farms. 

However, this doesn’t mean that Freight Farms stock won’t succeed post-SPAC. The food scarcity it addresses has the potential to make it one of the more successful long-term SPAC performers. 

Agtech is drawing big money. Last month, private equity firm Paine Schwartz raised $1.7 billion, its largest fund to date, to invest in businesses in the food and agribusiness sectors, The Wall Street Journal reported.

I’d watch this one to see if it gets across the finish line. If so, it could be off to the races. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. None of the above should be construed as investment or financial advice. Investing is inherently risky. Please perform your own due diligence.

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