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Investors Eye Growth in Vertical Farms

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AeroFarms grows leafy greens in vertical farms using data science and technology; its upcoming acquisition by SPAC Spring Valley could grow its equity value.

Vertical farming is taking root. The market share of large-scale farms was estimated at $3.3 billion by Precedence Research in 2020 and is anticipated to increase nearly ten-fold, reaching $31.6 billion by 2030.

One vertical farm enterprise, AeroFarms, plans to go public in a special purpose acquisition company (SPAC) business combination in mid-2021. The company got started in 2004 and was cofounded by CEO David Rosenberg along with Chief Marketing Officer Marc Oshima and Chief Science Officer Ed Harwood, PhD. It is a certified B Corporation and public benefit corporation and has earned spots on Fast Company's World's Most Innovative Companies, Time Inc.'s Best Inventions, INC magazine's 25 Most Disruptive Companies, and a first-place ranking on the FoodTech 500 list.

Click here for more information on SPACs.

A pioneer in the vertical farming space, AeroFarms is on a mission "to grow the best plants possible for the betterment of humanity," with a focus on doing more with less by growing produce using fewer resources, zero pesticides and less spoilage. "We look for inefficiencies and solve them using data-science. We use our proprietary, fully controlled technology platform to better understand plants, optimize farms, improve quality and reduce costs," Rosenberg said.

AeroFarms leafy greens are grown in an approximately 70,000 square-foot facility—a former steel mill—in Newark, New Jersey. Its wide variety of greens are sold throughout the Northeast U.S. at major retailers, including Whole Foods Market, ShopRite, Amazon Fresh and FreshDirect. In April 2021, AeroFarms broke ground in Danville, Virginia, on a new 136,000 square foot commercial farm that, according to the company, will be the world's largest indoor aeroponic vertical farm of its kind.

According to the company, it has a $1.9 trillion total addressable market and is expanding that through strategic partnerships, such as one with Chile's Hortifrut S.A. Together, the two companies will explore blueberry and caneberry production. "New Jersey is where blueberries were first domesticated in 1910," Rosenberg said. "With Hortifrut, we will be pioneering the next chapter by domesticating blueberries again in New Jersey—this time in a fully controlled environment."

International interest is demonstrated by AeroFarms' inclusion in Abu Dhabi Investment Office's $150 million investment in agricultural technology. AeroFarms' research center in Abu Dhabi will feature an advanced speed-breeding center and laboratories dedicated to R&D in precision phenotyping—studying the observable characteristics of an organism—machine vision and machine learning, robotics and automation.

AeroFarms is also doing more with less in its entry into the public market. Rather than a time- and resource-consuming IPO, it will go public through a business combination with Spring Valley Acquisition Corp. (SV:NASDAQ), a SPAC. Click here for more information on SPACs.

Vertical Farming Attracts Investor Interest

"Our banker at J.P. Morgan introduced us to Spring Valley. A SPAC made sense for us because it gives us an easier platform to tell our story to investors," said Rosenberg. "We share a long-term vision regarding sustainability and align in our concern for environmental issues." In addition, he notes that Spring Valley has a track record of bringing other companies public at a stage similar to AeroFarms.

Spring Valley (NASDAQ:SV), sponsored by Pearl Energy Investments, was formed for the purpose of acquiring a $1+/- billion enterprise value company in the sustainability sector. The total gross proceeds of Spring Valley's own IPO in 2020 were $230 million (23 million units at $10 per unit). J.P. Morgan Securities LLC is acting as the exclusive financial advisor to AeroFarms, while Cowen & Co. is the financial advisor to Spring Valley. It would not be unusual for these firms to initiate coverage on AeroFarms after the completion of the SPAC transaction.

AeroFarms has roughly $75.5 million in cash and will be 65% owned by existing shareholders after the merger. Revenue of $13 million is anticipated in fiscal 2022, jumping to $553 million by fiscal 2026, when EBITDA is expected to reach $193 million. All stockholders will roll 100% of their equity holdings into the new public company, according to Investor Place.

The business combination with Spring Valley is expected to provide up to $357 million in gross proceeds to AeroFarms, composed of Spring Valley's $232 million cash held in trust (assuming no redemptions by its shareholders) and a $125 million fully committed public investment in private equity (PIPE) at $10 per share. This includes investments from leading institutional investors, AeroFarms insiders and Pearl Energy Investments, Spring Valley's sponsor.

The "de-SPACing" is expected in summer 2021, at which point AeroFarms will have an estimated pro forma equity value of $1.2 billion. It will remain listed on Nasdaq under the new ticker symbol ARFM.

Lake Street Capital Markets initiated coverage on AeroFarms on June 15 with a Buy rating and $20 price target. Senior research analyst Ben Klieve wrote, "Representing a leader in next-generation production methods with a significant sustainability benefit, we view AeroFarms as a high conviction Buy opportunity for investors targeting investments redefining food production for decades to come."

The analyst noted that AeroFarms "will enter the public market following a SPAC merger with considerable upside potential from the current level. We see multiple expansion and capacity ramp as alpha drivers."

Venture capital interest in the controlled environment agriculture space—which includes greenhouses or container farms, in addition to vertical farms—has exploded. The Food Institute estimates, using data from PitchBook, that global VC investments in the sector tripled from 2019 to 2020, nearing $2 billion. Investor Place recently named several leading stocks in the space, including Kalera (OTCMKTS:KSLLF), Appharvest (NASDAQ:APPH), Hydrofarm Holdings (NASDAQ:HYFM), Village Farms International (NASDAQ:VFF), GP Solutions (OTCMKTS:GWPD) and Cubicfarm Systems (OTCMKTS:CUBXF), as well as Spring Valley–AeroFarms.

Cutting Edge Technology

AeroFarms grows plants using aeroponics, where a plant's roots are misted with water, nutrients and oxygen. Instead of dirt or water, the plants are grown on a cloth that can be sanitized and reused. Grown indoors under LED light, the controlled environment stymies pests, eliminating the need for pesticides, herbicides and fungicides. Rosenberg says the company can harvest in one acre what would require up to 390 acres outdoors by a farm in New Jersey, using up to 95% less water.

"We are the most vertically integrated tech company in the space," Rosenberg said. "Our proprietary agSTACK technology creates a fully connected and digitally controlled farm that integrates hardware, automation, intelligent controls and sensors, machine vision, supervisory control and data acquisition, and our manufacturing execution system to create a powerful data loop." The company holds 15 patents and has 38 more pending. "The result is clean, nutritious, flavorful produce grown year-round that is ready to eat with no washing needed."

The lure of vertical farming—the practice of growing crops in vertically stacked layers, typically in a controlled environment—has both economic and environmental benefits. Traditional field agriculture produces significant greenhouse gases, takes up half the U.S. land mass, and accounts for more than half of the country's fresh-water usage. A recent report by EY highlighted some of the economic reasons for the sector's growth, ranging from higher yields per acre, to reduced transportation costs for crops grown closer to consumers in cities, to the availability of consistent supply at predictable prices.

A recent report by McAlinden Research Partners contends that efficient vertical farming is poised to surge as an increasingly popular investment as a result of the mounting pressures on traditional agriculture. "A report from Big Think recently found that vertical farms are incredibly efficient when it comes to water usage, requiring 95% less irrigation than soil-grown plants. Nate Storey, co-founder of vertical farming startup Plenty, Inc., has highlighted the efficiency of vertical farming, noting that 99% of moisture transpired by plants can be recaptured and reused in a vertical farming system. . . As climate shifts continue to affect the global agriculture industry, indoor farming provides an efficient and sustainable way to produce more crops with fewer resources," the report stated.

McAlinden noted that AeroFarms is "rapidly expanding its distribution operations in the Northeast, collaborating with Whole Foods Market, Amazon Fresh and FreshDirect, according to Supermarket News."

"It will likely be several years before vertical farming technologies begin tapping their true potential, but a scaling of the industry is becoming increasingly likely as a counter to climate change and diminishing water availability," McAlinden concluded.


1) Diane Fraser compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She and/or members of her household own securities of the following companies mentioned in the article: None. She and/or members of her household are paid by the following companies mentioned in this article: None. Her company has a financial relationship with the following companies referred to in this article: None.
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Additional Disclosures:

Lake Street Capital Markets, AeroFarms, June 15, 2021.

Lake Street Capital Markets, or its affiliates, intends to seek or expects to receive compensation for investment banking services from the subject issuer in the next three months.
The authoring analysts who are responsible for the preparation of this investment research are eligible for compensation based on the total revenue and general profitability of Lake Street Capital Markets, which includes investment banking revenue.
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Lake Street Capital Markets may effect transactions as a principal or agent in the securities mentioned herein.

McAlinden Research Partners:
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