The AgTech Revolution is Underway in Appalachia with AppHarvest – IPO Edge
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The AgTech Revolution is Underway in Appalachia with AppHarvest
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The AgTech Revolution is Underway in Appalachia with AppHarvest

AppHarvest is going public via a merger with Novus Capital Corp.

  • AppHarvest is an AgTech company that grows chemical pesticide-free produce including tomatoes in palatial greenhouses
  • Novus Capital Corp. trades at an implied 2.9 times 2024 sales, just ½ the multiple of Beyond Meat, Inc.
  • Revenue forecast to rise 10x between 2021 and 2024 with sales effectively locked in due to enormous demand
  • Potential to market tomatoes and other produce at a premium price point over time
  • Investors include Fidelity Management & Research Company LLC, Inclusive Capital, and Novus Capital Corp.
  • Board members include Martha Stewart, Narya Capital Co-Founder and Partner JD Vance, Impossible Foods Chief Financial Officer David Lee, impact investor Jeff Ubben
  • Shareholders include Revolution’s Rise of the Rest Seed Fund, Inclusive Capital Partners, Equilibrium, Narya Capital, Lupa Systems, Breyer Capital, Endeavor Catalyst

By Jarrett Banks

Investors looking for a certified B Corp. couldn’t do better than AgTech startup AppHarvest, which combines more than purpose and profit: It is reviving an entire region whose residents desperately want it there.

AppHarvest’s Kentucky greenhouse is less than a day’s drive from 70% of America’s population, which will reduce fuel and food waste associated with transporting fresh vegetables around the country. The greenhouse grower, which relies on rainwater rather than local water supplies, aims to create jobs in Eastern Kentucky, a region hard hit by the decline of the coal industry.

And with the company going public via a merger with a SPAC called Novus Capital Corp. (Ticker: NOVS), investors have a chance to be a part of the Appalachian food revolution. The combination, which is expected to close late in the fourth quarter of 2020 or early in the first quarter of 2021, is expected to provide $475 million of gross proceeds to the company, including $375 million from a fully committed common stock PIPE at $10.00 per share anchored by existing and new investors – Fidelity Management & Research Company LLC, Inclusive Capital, and Novus Capital Corp. Investors who buy NOVS shares now will automatically see them convert to shares of the combined company after the merger closes.

The company is one of only 3,600 certified B Corps and will become one of just a dozen publicly traded public benefit corporations. Jonathan Webb, the Founder and CEO of AppHarvest, which will use the ticker APPH when it lists on the Nasdaq, is very outspoken about the need for companies to be “sticky” in the long term. The company aspires to transform American agriculture with large-scale, controlled indoor farms. J.D. Vance, author of national bestseller The Hillbilly Elegy, is on the board of directors.

The company says its farms aim to improve access to non-GMO fruits and vegetables, reduce water usage by 90%, and eliminate agricultural runoff. The company plans to use the $475 million from the transaction to fund more projects in the area.

AppHarvest just announced it has planted its first tomato crop at its high-tech controlled environment agriculture facility in Morehead, Ky. The crop is scheduled to be harvested and available at leading U.S. grocery stores in early 2021. The “Dutch-style” 60-acre facility is one of the world’s biggest high-tech greenhouses (it has strong relationships with companies in the Netherlands, which has the world’s leading high-tech greenhouse industry). The company is also already building a second similar-size facility in nearby Richmond, Ky.

Mr. Webb has been vocal about wanting to replace Mexican produce in U.S. grocery stores. The majority of many vegetable varieties in U.S. grocery stores are shipped from Mexico where they are sprayed with chemical pesticides three to four times a week. They are genetically modified for transportation and don’t have the nutrient density of those organically grown. AppHarvest believes its Appalachian location between the East Coast and the Midwest could be a solution and bring jobs back.

Tomato Plants at the Morehead, Ky Facility

Meanwhile, Covid-19, in addition to pointing out myriad flaws across the healthcare industry, has also exposed vulnerability in supply chains. AppHarvest is betting that supply chain disruptions related to the coronavirus pandemic will push large grocers to back more domestic sources of produce.

Then there is climate change. AppHarvest’s third facility, located in Berea, Ky., will be 15 acres and grow leafy greens. Drought-stricken Arizona and California currently produce 90% of U.S.-grown leafy greens. Central Appalachia has so much rain that the facilities can be operated on 100% recycled rainwater.

The region also has lower utility and property rates along with cheaper labor. At its first facility, AppHarvest received 6,000 applications for 300 job openings. With high unemployment across the region, the company will focus on retraining people who have lost their jobs in other industries.

The company says it wants to get to a volume scale so that it can sell its produce to all Americans, not just people who can pay a premium. By using new technology such as robotics and AI that scans plants to look for signs of infestation, AppHarvest is ushering in a new era in agriculture. It uses bumble bees inside the greenhouses to pollinate the plants and monitors their hives with AI.

Outside View of the Morehead, Ky Facility

A greener and cleaner era will also probably be in line with the election of Joe Biden. The President-elect’s website says he will “create jobs in climate-smart agriculture,” with a focus on hard hit, rural communities.

Beyond government efforts, ESG assets under management reached $1 trillion for the first time in the second quarter, according to Morningstar data. UBS found that 56% of sustainable funds outperformed their peers in the second quarter. Sustainable investors will likely keep the wind at their backs as governments push green stimulus, the Swiss bank’s analysts said.

Setting aside the company’s ESG credentials for a moment, AppHarvest has an enviable core business model. Thanks to extremely high demand for U.S.-grown produce, grocers will likely trip over themselves trying to secure AppHarvest tomatoes. And the company has a distribution deal with one of the two dominant distributors in the U.S. and Canada.

That should give investors comfort in the company’s projection to grow revenue tenfold from $25 million in 2021 to $246 million in 2024. AppHarvest also expects to swing to positive Ebitda reasonably quickly – in 2023 – which should give investors added confidence.

Another possibility that’s not incorporated into the company’s projections is brand power. While the company wants to price its produce at rates that are in reach of all consumers, AppHarvest’s tomatoes could easily become recognizable and command a premium., Inc.’s Whole Foods, for instance, frequently advertises produce provenance to charge higher prices.

The good news that may surprise some investors: The stock is still cheap. At the SPAC’s closing price of $11.33 Thursday, AppHarvest trades at an implied enterprise value, adjusted for cash, of 2.9 times 2024 sales, according to Sentieo, an AI-enabled research platform. That’s roughly half the multiple of Beyond Meat, which trades at 5.7 times and isn’t growing as fast.

And as one of the few B Corp. companies in the public markets, AppHarvest should get an extra boost. Just look at Lemonade, a fintech B Corp. that trades at 7.4 timers 2024 sales – far above peers.

But AppHarvest is more than a feel-good ESG – or even profit – story. The company also embodies the private sector leading the country out of one of the worst crises in American history. Maybe a new JD Vance type author will someday write another bildungsroman about the region. Call it Hillbilly Energy.

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