- AeroFarms going public via merger with Spring Valley Acquisition Corp. (NASDAQ: SV)
- Company will be one of a small number of certified B Corporations in public markets
- Fresh produce industry forecast to grow 7{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} annually from 2019 to 2023, hitting $1.8 Trillion
- AeroFarms projects revenue of $330 million in 2025 with $82 million of Ebitda
- Stock trades at 2.6 times 2025 sales, far less than AppHarvest, Freshpet, Beyond Meat
- Company led by Co-Founder and CEO David Rosenberg, who helped pioneer technology
- Already operating New Jersey facility that sells greens to over 200 stores in region
- Customers include Whole Foods, FreshDirect, ShopRite, Amazon Fresh
- Plans next facility in Virginia with more regional locations across the U.S. on the way
When it comes to leafy greens, triple-washed or even organic just doesn’t cut it anymore, especially when produce comes from thousands of miles away and can spoil too quickly to eat. The good news for consumers and investors is an AI-based solution to those problems – all inside a tower that can be built virtually anywhere.
It’s time to get a taste of AeroFarms, which is merging with Spring Valley Acquisition Corp. (NASDAQ: SV), a special purpose acquisition company, or SPAC, that raised money to find a target. Investors who buy SV shares now will see them automatically convert to AeroFarms shares under the ticker ARFM after the deal closes later in the second quarter.
There’s good reason to consider investing in AeroFarms now rather than wait. Founded in 2004, the company has pioneered a technology that allows plants to grow in a highly-efficient, automated setting such as the company’s first facility in Newark, NJ, which is the largest vertical farm in the world.
AeroFarms uses propriety technology that includes lighting, machine learning, and genetics – all of which took years to refine before it could begin churning out produce for retailers. That gives it a major head start – and moat between – rivals who might try to replicate its offering.
A key benefit of the AeroFarms system is that it allows plants to grow with absolutely zero chemicals. Some so-called organic produce actually does contain certain pesticides. Worse, many consumers are lured by “triple-washed” produce that may have originally been sprayed with pesticides and still has significant traces remaining.
Indeed, demand for AeroFarms leafy greens is already strong across multiple segments. Those range from mass-market grocers like ShopRite to Whole Foods to delivery options such as FreshDirect and Amazon Fresh.
Such retailers – who already sell AeroFarms produce in over 200 locations – are likely to to snap up as many boxes of leafy greens as they can. Last year, AeroFarms products sold at a 50{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} higher rate per SKU than the average for indoor farming, according to Nielsen. The produce also boasts a Net Promoter Score (NPS) of 55, which is 57{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} higher than the indoor vertical farming segment average.
At the moment, there is enough demand to sell the Newark produce within a small geographic radius to ensure freshness, so more production capacity is the game plan. The next facility is expected this year in Danville, VA, which can serve the greater Washington, D.C. area and further south to Georgia. Potential target locations for facilities in 2022 include the Southeast, Texas, and greater St. Louis.
Another distinction to consider is that AeroFarms puts plant roots into cloth (which it can reuse or recycle) rather than water, as is done with hydroponics. That allows the plants to grow significantly faster, in turn increasing output frequency.
Consider AeroFarms’ superior metrics. Thanks to its technology and vertical stacking, AeroFarms can generate up to 390 pounds of produce per square foot annually. That compares with 12 pounds in a high-tech greenhouse and just one pound through traditional farming.
And with a data-driven model, AeroFarms can get better and better over time. With an understanding of plant biology, the system monitors each harvest and uses results to improve conditions such as lighting, water, and nutrients. The result is a superior product at a lower cost.
There is already proof in the numbers. AeroFarms has increased lighting efficiency 59{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} in the last five years. And in the last year alone, production yields rose 23{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208}.
AeroFarms can deliver important social benefits to areas known as “food deserts” where low income people may have access to cigarettes and beer but little fresh produce. That problem became exacerbated during the worst days of the COVID crisis when supply chains dried up and grocers were left empty shelves.
Importantly, AeroFarms is a certified B Corporation, an unusual feature that appeals to many ESG-focused investors. In fact, the company didn’t need to change anything about its operations when it got the certification, which sets it apart from others that sought ESG cred and may have tweaked their businesses to fit the framework.
What’s more, many big institutions that want to buy ESG-focused companies aren’t allowed to buy shares of SPACs. That could mean a strong bid for AeroFarms right after the merger is effected.
All of this translates to an impressive growth trajectory that should have investors’ mouths watering. The company expects revenue to rise from $4 million this year to $330 million in 2025. The company will become profitable that year with $82 million of Ebitda and $193 million in 2026.
Some icing on the cake – that’s not captured in current forecasts – includes new categories beyond leafy greens. Berries, for instance, are notoriously hard to grow without pesticides. But AeroFarms has already had success, growing over 50 varieties of strawberries that are sweeter than their traditionally farmed counterparts, grow year-round, and of course have no pesticides.
Then there is all of the intellectual property (IP) AeroFarms has developed, with over 250 invention disclosures. Over time, some of that could be monetized by licensing it to other companies that don’t compete directly with AeroFarms.
It’s important to note the company will continue to be led by Co-Founder and CEO David Rosenberg, whose deep understanding of the technology has been critical to AeroFarms’ growth. Mr. Rosenberg will remain critical to both improvements in production as well as distribution to retail partners.
Trading at exactly $10, the company has an implied enterprise value of 2.6 times 2025 sales. That looks downright scrumptious compared to other high-growth, sustainable food players. Beyond Meat, Inc. trades at 5 times and FreshPet Inc at 6 times, according to Sentieo, an AI-enabled research platform. AppHarvest, perhaps the most direct comp, trades at 3.2 times the company’s own 2025 forecasts, though it recently commanded a far higher valuation.
The SPAC universe has traded softly in recent weeks, particularly as investors grew wary of ideas that look more like science projects than real businesses. But AeroFarms is the real deal, already feeding Americans as fast as it can deliver its greens to retailers. And with the stock trading at the value of cash in trust, there is no downside to owning it here. Investors with an appetite for returns have every reason to start nibbling.
Contact IPO Edge:
John Jannarone, Editor-in-Chief
Twitter: @ipoedge
