AppHarvest/Spacs: unripe

Martha Stewart, JD Vance and Jeffrey Ubben want to sell you sustainable tomatoes farmed in greenhouses in the otherwise neglected Appalachia region that had been brutalised by the decline in coal-mining. What would seem like the fever dream of the Davos set is instead soon to be a publicly traded company.

The business in question, AppHarvest, is to list its shares through a reverse merger with a blank cheque vehicle, Novus Capital Corporation. On Tuesday, its shares went up more than 20 per cent.

What AppHarvest brings in feel-good hype, it does not quite yet bring in results. On an enterprise value basis, AppHarvest is going public at a $550m value even as its management projects revenue of just $25m in 2021. It is not that AppHarvest is a poor concept. Rather it is just unripe for the public markets.

Alas, that misgiving has not slowed down most Spac (special purpose acquisition company) reverse mergers this year. Mr Ubben, the activist investor turned environmental, social and governance evangelist, most recently defended another one of his investments, Nikola Corporation, product of a Spac merger whose electric trucks will not generate revenue for years. Like autotech, “agtech” is another area Spac sponsors have been targeting. Public market investors are being pressured into investing in ethical businesses and start-ups are keen to take advantage.

AppHarvest believes that locally sourced vegetables in the mid-Atlantic region could benefit from the trend towards domestic supply chains. By 2025, the company says it will have 12 facilities and $376m of annual revenue, the latter doubling every year on average from 2021 on. 

Based on that maths and the mooted enterprise value, its valuation looks reasonable when compared with forward multiples of Beyond Meat and Vital Farms. The problem with those comparables that AppHarvest handpicked is that those companies already have significant revenue and profits which have validated their business models. The best AppHarvest has for now is a blue-chip set of backers and board members. 

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