Eric’s Top 3 – Elections Special

SPACInsider contributor Eric Weidemann this week compiled his three favorite potential SPAC targets in industries that could be seeing a boost under a presidential transition. We look at why they are compelling and why each could be a fit for a blank-check merger.

Simplisafe

It has been an anxious week amid a nervous year and the stress of the current political divide is unlikely to dissipate once a winner is officially called. On the contrary, more than half of Americans in one poll expect some measure of violence in the wake of the country’s presidential election and home security systems stand to benefit as a subscription service to salve America’s collective political unease.

Simplisafe, which produces and sells self-installed wireless home security systems, would be an apt target not only due to current events but as a comp to one of the more of the year’s more successful SPAC deals. Mosaic Acquisition Corp. completed its combination with smart home and security company Vivint in January and the marriage finished trading yesterday at $18.79.

Even if the election period remains calm, the market for home security systems is expected to grow at a CAGR of 8% and be valued at about $78.9 billion in 2025. It also stands to be a sector that rises with the tide of new homebuilding and new home purchases – more on that in a bit.

Boston-based Simplisafe reportedly crossed the unicorn valuation threshold in 2018 when private equity firm Hellmann & Friedman bought a majority stake valuing the company over $1 billion. Vivint was valued at about 10.5x its next-year (2020) projected EBITDA, so home security is not quite a bargain sector. But, with all of the potential integrations with other smart home functions and potential for monetization of data between these devices, it is an area of continued untapped upside.

Arcadia

As we write this, a winner has not yet been declared in the US presidential election, but events are trending towards a new administration and renewable energy would stand to be a big winner in the transition.

Arcadia certifies renewable energy sources in the mix that reaches the grid, allowing utilities and individuals to up their share of green energy and effectively takes a commission in the process.

A Democratic administration would likely re-enter the Paris Agreement to accelerate a transition to green energy sources and Arcadia could be ideally positioned to ride that change. Under that agreement, the US would pledge to reduce emissions by 25% by 2025, but is currently on track for a reduction of just 17%.

In December, Arcadia announced both a closing of its $30 million Series C round and became the country’s largest residential community solar manager. The raise drew investments from Macquarie Group, Seek Ventures and Mitsui USA, among others and was led by G2VP, which previously invested in SPAC targets Luminar and Shift.

Arcadia is arguably an administration-agnostic target, given how many SPACs are currently hunting in the sustainability and clean energy space. Ten SPACs have already stated they are hunting primarily in the clean energy or sustainability spaces.

But, a Democratic White House would almost certainly place additional tailwinds at the backs of renewable energy to the detriment of legacy power sources.

Equipment Share

Some companies stand to be growth plays under either party. One such firm is Equipment Share, which serves as an “Airbnb” for construction equipment, renting machines out to contractors as needs arise.

Both political camps have promised a reinvestment in infrastructure, which would require lots of diggers and dozers to complete. On the other hand, should partisan deadlock forestall such plans and macro-economic pressures like the pandemic continue, Equipment Share provides construction companies a cheaper option for getting their work done than purchasing heavy equipment with cash.

And, there is plenty of building to be done absent federal incentives.

The market for newly-built houses has already rebounded after a short pandemic-linked lull, and could be further boosted by the option to work from home transitioning from a temporary necessity to a common feature of American work life. Americans have are increasingly considering greener pastures due to both cheaper mortgages available for remote working outside of cities and increasing risks from natural disasters like forest fires and hurricanes.

Big tech companies like Microsoft, Google, Reddit and Facebook have all announced plans to make some of their work-from-home policies permanent. In some ways, Equipment Share is their peer as a Y Combinator alumnus and thus has the sort of tech-backed internal structure that is built to scale.

Despite a challenging overall climate, SPACs that have announced combinations in the home building and buying space have continued to trade up, such as LF Capital (NASDAQ:LFAC) on its proposed deal with LandSea Homes and Social Capital II’s (NYSE:IPOB) agreement with OpenDoor Labs.