Danimer Scientific is Going Public via a Merger with Live Oak Acquisition Corp.
- Danimer produces biodegradable material in high demand for bottles, straws, containers
- Partnerships include PepsiCo, Inc., Nestlé S.A. and Walmart Inc.
- Company sees 59{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} annualized sales growth, 140{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} Ebitda growth though 2025
- Sales contracts secured by “take or pay” terms, making forecasts very accurate
- Global biopolymer market is seen exceeding $13 billion by 2021
- Existing shareholders rolling 100{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} of their equity into public company
- Discounted to comps at multiples of 1.3 times 2024 sales and 4.2 times 2024 Ebitda
By Jarrett Banks and John Jannarone
Investors building green portfolios are often overwhelmed by how many stocks there are to choose from. But in some industries, the choice can be simple.
It’s no coincidence that PepsiCo, Inc., Nestlé S.A. and Walmart Inc. have all bolstered their corporate social responsibility (CSR) by partnering with Danimer Scientific, which makes biodegradable material used in everything from bottles to straws to packaging. With the company going public via a merger with a SPAC called Live Oak Acquisition Corp. (Tickers: LOAK, LOAK-UN, LOAK-WT), investors have a rare chance to own a pure ESG play that’s also bringing sustainable jobs to mining country.
Danimer, based in Bainbridge, Georgia, sells a greener alternative to traditional plastic products. On its face, the science isn’t complicated: Canola oil is fed to bacteria which produce a byproduct called a biopolymer. That is turned into a resin that can be shaped into a bottle, fork, or straw that will keep its shape in a kitchen pantry and only disintegrate once exposed to more bacteria – in the ocean, for instance.
But mass production takes decades to refine and Danimer has a big lead over rivals. The company boasts a portfolio of over 125 patents across 20 countries, purchased from Procter & Gamble in 2007. The company has spent the last 13 years perfecting its technique, setting the stage to meet massive demand.
The global biopolymer market is seen exceeding $13 billion by 2021, according to data from Transparency Market Research. With so little of material like Danimer’s available, the company is set to sell as much as it can churn out.
Live Oak CEO Rick Hendrix told IPO Edge that his SPAC wasn’t on a mission to find a company with strong ESG credentials but embraces the “green” characteristics of the company. It was the underlying business model that piqued his interest. He pointed out that Danimer has highly unusual – and highly attractive – features such as multiyear sales contracts with “take or pay” terms. That means essentially all of the planned production capacity will translate to sales dollars.
Danimer is in the process of scaling up production capacity of its biodegradable plastics at its facility in eastern Kentucky that is providing much-needed employment to regions hit hard by the loss of manufacturing and coal mining jobs in recent decades. The election of Joe Biden could also be seen as a boon after the then-candidate said that plastic is a threat to safe water in his climate plan and he supports phasing out single-use plastics.
The Kentucky facility began shipping product in March and is sold out to capacity of about 20 million pounds annually. The company will use the proceeds of the SPAC transaction to fund a major expansion of its plant, to raise that capacity to about 65 million pounds a year by 2025.
Danimer also plans to break ground on a second facility in early 2022, which may open the following year and reach 125 million pounds of annual capacity by 2027. Danimer forecasts $513 million in sales in 2025, with earnings before interest, taxes, depreciation, and amortization (Ebitda) of $169 million. That’s an increase from $51 million in sales and $2 million in Ebitda expected this year.
An assessment of demand from blue chip customers indicates enormous potential – well beyond what Danimer already forecast. PepsiCo has a commitment to 100{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} recyclable or compostable packaging by 2025. McDonald’s has a similar goal. And Coca-Cola, Nestle, and Genpak all have initiatives to reduce their reliance on fossil fuel-derived packaging and containers. The bioplastic packaging market will grow almost $6 billion between 2020-2024, at an annualized growth rate of almost 18{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} during the period, according to research company Technavio.
At the current share price, Danimer trades at just 1.3 times 2024 forecast revenue and 4.2 times forecast Ebitda. By comparison, Croda International Plc commands a multiple of 16.6 times 2024 consensus revenue and 5.3 times Ebitda, according to Sentieo, an AI-enabled research platform. Novozymes A/S trades at even richer multiples of 6.6 times 2024 sales and 18.1 times Ebitda.
In a vote of confidence, existing shareholders are rolling all of their equity into the new company. With the shares only up about 7{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} from the SPAC’s listing price of $10, investors should consider buying now or risk turning green with envy.
