The indoor farming Spac that bit off more than it could chew
Plus, crunch time for a European football deal
AppHarvest: growing pains
Few businesses can bring together the US domestic goddess Martha Stewart, hedge fund veteran Jeff Ubben and Hillbilly Elegy author JD Vance. Who would’ve thought it would be tomatoes?
They’re all early backers of AppHarvest, a start-up that runs America’s largest hydroponic greenhouse, otherwise known as vertical farming.
The Kentucky-based company took a bit of a bruising on Wednesday, to say the least.
AppHarvest founder and CEO Jonathan Webb © Financial Times
Shares in AppHarvest, which became a listed company earlier this year through a deal with a special purpose acquisition company, fell by as much as 40 per cent following news that it wouldn’t meet the projections it made a few months ago.
Even before the company had harvested its first tomato, AppHarvest announced plans to go public through a deal with Novus Capital Corporation at a $1bn valuation. This was in September, the heady days of the Spac boom when companies were clinching deals to go public at a rapid pace and lofty valuations. The FT’s Lex column pointed out at the time that it was perhaps too early for a listing.
While AppHarvest was yet to open its doors to its first greenhouse, it projected $21m in revenue for this year, which would shoot up to $387m in 2025, in a glossy presentation to investors. Shares rose as high as $40 after it listed in February, earning the company a $3.5bn valuation.
But as FT Alphaville’s Jamie Powell points out, those numbers have now been revised down significantly: “The company adjusted its full-year 2021 net sales outlook to the range of $7m to $9m from a prior range of $20m to $25m.” Its losses are also higher than expected — from $48m to $70m.
One of the main perks of going public through a Spac, instead of a traditional initial public offering, is the ability to make projections about the company’s growth.
Businesses that choose an IPO aren’t prohibited from doing the same but there are serious liability risks with doing so, hence a “quiet period” ahead of the listing.
While the Securities and Exchange Commission was largely silent on the issue for much of the boom period, it has recently warned companies that it will closely scrutinise projections.
AppHarvest is standing by its 2025 outlook, which strikes DD as odd given how much it has missed the mark so far in 2021. According to the presentation, it will have 12 facilities in the next four years capable of producing tomatoes, cucumbers and leafy greens.
Let’s hope it can produce the kind of green investors like, as well.