Industrial robotics companies are on blazing-hot growth trajectories and need rapid access to liquidity to help them meet ambitious growth goals. As such, they are ideal targets for a special purpose acquisition company, or SPAC, a decades-old but suddenly hot financial strategy in which a company is formed to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
The new-age industry and the rejuvenated financial model converged on Wednesday when privately held robotics company Berkshire Grey (BG) said it would be acquired by Revolution Acceleration Acquisition Corp. (NASDAQ:RAAC), a SPAC co-founded by AOL founder Stephen M. Case and John K. Delaney, a former Democratic congressman from Maryland who ran a short-lived campaign for the 2020 Democratic presidential nomination. Delaney is the SPAC’s CEO.
The transaction will infuse BG with $413 million in cash and will leave it with $507 million in cash on hand once the deal closes in the second quarter, BG and Revolution said. When it goes public sometime during that time frame, BG’s equity value is expected to be as high as $2.7 billion, the companies said.
BG founder and CEO Tom Wagner will continue to head the company after it goes public. Delaney will join BG’s board when the transaction is completed.
Under the SPAC model, a public company is formed with the goal of using shareholders’ capital to buy a privately held firm, which in turn goes public at some point after the acquisition closes. Revolution Acceleration filed its IPO papers in November.
Companies typically choose SPACs because it’s a faster route to going public than through an IPO. An IPO process can take six months to a year from start to finish, according to Benjamin Gordon, CEO of Cambridge Capital, an M&A firm specializing in supply chain transactions. By contrast, a SPAC transaction can take about half that time to complete, Gordon said.
In addition, a SPAC provides companies with primary and secondary capital, with primary capital placed on the balance sheet and secondary capital earmarked for investors, Gordon said. By contrast, an IPO only puts cash on the balance sheet, he said. As a result, a shareholder can sell their stakes in a SPAC transaction, but they can’t do it in an IPO, Gordon explained.
“For a business in a fast-growing field like industrial robotics, the public markets make great sense today,” Gordon said in an e-mail. “Investors are enthusiastic about automation that supports ecommerce. They are willing to provide capital to fund rapid growth.” As evidence of a longer-term commitment, all of BG’s existing investors plan to roll over their capital into the new company, rather than extract it, Gordon said.
Cambridge has been discussing the SPAC concept with many supply chain technology companies, Gordon said.
GOING BIG
The proceeds from the deal will be used to fund BG’s growth plans, which based on a recent presentation are ambitious to say the least. By 2025, BG has projected annual revenue of $927 million, which if hit would amount to a 93% compound annual growth rate from the $35 million in revenue in 2020. Gross profit is expected to rise to $441 million by 2025 from $3 million in 2020. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is projected to swing from a $55 million loss to a $232 million gain over that period.
BG expects a $1.3 billion order pipeline through 2025 from “anchor” customers like Walmart Inc. (NYSE:WMT) , FedEx Corp. (NYSE:FDX), Target Corp. (NYSE:TGT), and TJX Companies (NYSE:TJX), as well as an additional $400 million from 163 projects with 119 potential customers who it did not identify. BG said it plans to expand more aggressively into services starting around 2023 in a bid to develop the adequate recurring revenue streams every investor loves.
BG’s high-performance bars can be hurdled, the companies said, because of three factors: The demand for rapid, accurate and cost-effective e-commerce fulfillment will trigger a tsunami of growth in robotics solutions; only 5% of U.S. warehouses are currently automated, and robotics is a complex and expensive undertaking that companies are unlikely to develop in-house and that only a handful of well-funded third-parties can pull off.
Many retailers, including some of the larger players, have little or no robotics exposure. Yet it seems they will need it in order to fully build out their e-commerce infrastructure and to keep pace with Amazon.com, Inc. (NASDAQ:AMZN), which has 70 fulfillment centers and five sortation centers populated with robotics. Amazon pushed ahead of every retailer into robotics nearly nine years ago when it acquired Kiva Systems, Inc., and its bright yellow warehouse bots for $775 million. Amazon quickly took all of Kiva’s resources in-house and never looked back.
XPO Logistics, Inc. (NYSE:XPO), the world’s second-largest contract logistics provider with 890 warehouses in North America and Europe, expects to double the number of robots during 2021, Chief Strategy Officer Matt Fassler said on the company’s most recent analyst call, XPO experienced a six-fold productivity increase in warehouses that used robots to pick inventory and bring it to workers rather than in a fully-manual warehouse, Fassler said. XPO was able to quintuple its per-unit shipping pace in 2020 using robotic technology, he said.
The company did not provide a number on how many robots it currently uses.
(An earlier version did not list some of BG’s anchor customers. FreightWaves regrets the error.)