SPAC in business: Foodtech blank-cheque company CEO bullish on future of alt-protein stocks
Sizzle Acquisition Corp chief executive Steve Salis on the hunt for a challenger brand to take public as Covid-19 presents a unique financial environment for F&B businesses
The Special Purpose Acquisition Company (SPAC) trend emerged a couple of years ago as a means to fast-track scaling businesses into the public markets.
Tech has seemingly been the central theme in the SPAC universe as many tech-focused companies have invested huge amounts of capex in developing products and systems to propel themselves forward.
F&B and foodtech SPAC Sizzle Acquisition Corp, is on the hunt for a potential food or consumer-tech leader to provide with access to public capital and accelerate its growth.
Sizzle founder and chief executive Steve Salis has vast experience in both foodservice and food and consumer-tech from owning restaurants and establishing a family office investing across the two sectors.
Speaking to NutritionInvestor, Salis said Covid-19’s impact on the capital markets and the food sector presented him with a unique opportunity to establish Sizzle and take advantage of the current financial environment.
Following an oversubscribed $155 million IPO in November, Salis outlines his plans for Sizzle, his view of the current foodtech space and why he is bullish about alt-protein stocks despite Oatly and Beyond’s poor performance in recent months.
What’s you background and how did you get started in the restaurant business?
I’m an entrepreneur based in Washington DC and New York City. I’ve been in the food business and adjacent sectors for over 18 years.
I built my first company from a piece of paper to a very significant valuation after I ran the company many years as CEO. About four or five years ago, I started to see a pretty significant shift taking place in regards to a consumer change in preferences and how businesses could access and engage with their customers.
The world of dealing with customers coupled with how the capital markets were working led me to start my own holding company, which operates more like a micro-family office where we own and operate an array of restaurants, retail and consumer brands. We have wholesale manufacturing companies, real estate and a venture arm, so it’s pretty diversified. The core competency is food.
Why did you decide to take the SPAC route?
During Covid-19 it made sense to pursue the idea of setting up a blank-cheque company. Of course others had the same idea and we had various parties that were raising capital. We went public on the fourth of November and closed on Monday the eighth. The book was significantly oversubscribed and now the real work starts and we have to go out and find a great company that ideally meets our thematics and we can add great value to as a publicly traded company.
The alternative finance industry is really opening up at a very significant level and that I think is one of the great breakouts coming from Covid-19. I saw this incongruence taking place far before Covid although in many cases the pandemic has manifested it.
A SPAC is a great way to get public a lot faster than the traditional IPO process or even via a direct listing as we’ve effectively done all the work. You still get to go public and you merge with a company that has a lot of cash that can help your balance sheet, whether it’s to delever debt, whether it’s for working capital for general corporate purposes, or whether it’s to buy down new investors that need liquidity. There’s a myriad of reasons, but we can make them happen fast whether we own a minority or a majority position.
The other thing is price certainty as we’re dealing with a very haphazard marketplace. I think a lot of people think it’s very frothy and I tend to agree in various ways, shapes and forms.
The SPAC management team can also play a lot of roles, right? We can play the merchant banker, which is effectively providing a bunch of cash to effectuate a deal. But it could be more than that; the company could need guidance and our team is just made up of a lot of people with deep experience, both privately and publicly.
Why do you think the model is particularly suited to food, foodservice and foodtech?
If you look at the restaurant industry, we’re seeing significant tailwinds with respect to sales. But the challenge is they’re comparing sales figures to 2019 because 2020 was kind of a throwaway year. The distribution of sales has materially changed for a lot of companies across the various digital channels etc.
You’re seeing tailwinds in the sales side but you’re actually seeing significant headwinds on the expenses side, more specifically cost of sales with regards to supply chain and labour and the additional cost of delivery fees and more packaging expense. What’s happening is the business model for restaurants is changing. And so in light of the uncertainty and perhaps in needing significant capital to augment the business to grow itself into the 2030s and 2040s, this is a great opportunity. If you have a good brand with good fundamentals and you’ve demonstrated that historically, this could be a wonderful opportunity for you to access the public markets, especially in light of the private to public valuations when it comes to restaurants.
On the foodtech and restaurant tech side, regarding the proliferation of digital technology and how it’s materially increasing, a business has to understand the way Millennials and Gen Zers are behaving. As an operator you need to consider the role of technology and foodtech and restaurant tech companies are generally spending a lot of money to develop their systems and they need money to finance that. Depending on whether they’re building themselves to be an acquirer versus an acquiree, they need money either to make strategic acquisitions to build scale, or scale as quickly as possible to become desirable for an acquirer.
The public markets could present foodtech and restaurant tech companies with available credit. Depending on the size of the company, its capital structure, its position in the market and what its desires are, this is a great opportunity.
What’s your remit for companies to acquire? How much of the food and beverage industry are looking at?
Based on my and the team’s experience, we’ve laid out a thesis that enables us to pursue targets in various places: restaurants, retail, hospitality, consumer, then tech by way of foodtech, restaurant tech, consumer tech and payment tech. A lot of these company’s lines are crossed, for example if you’re in the consumer tech space you’re likely also in the foodtech space and perhaps if you’re in the payment tech space, you’ll be in the retail space as well. There’s a lot of overlap there. These areas meet the skillsets and the capabilities of our team. But of course this doesn’t preclude us from buying anything that we think is going to work or that we think the District of Columbia is going to get excited about.
Is this really a good time for a young food company to go public, considering the volatility of food and foodtech stocks at the moment as sales have taken a hit and supply chain challenges inflate prices?
Every situation is unique, but I would say that it’s an interesting time right now and a lot of companies that are getting out there are being viewed very favourably. In the restaurant world there have been a lot of IPOs as of late. [Salad bar scale-up] Sweetgreen has just gone public and they’ve gotten the access to the public markets they needed after burning through $100 million in cash last year. I think the timing is interesting.
If you’ve got a good brand with good fundamentals, have seen a good bounce-back with respect to Covid and have a good plan for future growth, whether that’s organic or through strategics, now is the time to go public. While we’ve seen some inflation and other various things in the capital markets, debt and credit are still cheap.
In the case of Oatly and the point around IPOs in the protein alternatives space, I think we’re seeing two things happen there. We’re seeing a growing lifestyle taking place among consumers, but the real money is going to be made on the mass-market consumption of the products that taste very similar to something consumers are already used to consuming. If companies can substitute products and ensure the taste, experience and price is right for consumers, those products will have unprecedented levels of growth ahead of them.
A lot of them are finding they go out at big valuations then they stabilise and the question really becomes ‘how do we grow?’ I do think that acquisitions are going to play a role in this industry. I do wonder if these companies will find themselves in a position where there’s only so much growth if there isn’t more consolidation into the alternative space in the next few years.
If you look at where the adoption of alt-protein products is taking place, it’s more coastal or urban areas because there’s a more sophisticated and diverse consumer base. The minute you can get to the suburban areas that make up most of the US, these companies could do some real damage [to traditional food categories].
What is your ideal timeline in terms of acquisition and taking the company public? And also, how much influence are you ultimately looking to have in the business?
We have 15 months from the time we close to pursue a target and effectuate a merger. As far as our involvement, it just depends on what the company needs. I think both parties will have the same objectives to own and be part of a great brand. Really good brands resonate differently with consumers and now, more than ever, people care about how they align themselves with brands. There’s a lot of flexibility in the mandate; we just want to find a great company that’s ready, willing and able to take the next step so we can help them in their journey of being great.
Are you still seeking institutional investment and raising PIPE?
We have already raised with investors and have the money in the bank. We were very fortunate to get a tremendous amount of excitement from the investment community.