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A Quick Take On AXIOS
AXIOS Sustainable Growth Acquisition Corporation (NYSE:AXAC) has raised $150 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.
The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in the sectors of agribusiness, plant-based proteins, food processing, and AgTech, with our target search focused on agricultural companies in Central and Eastern Europe.
While the SPAC’s leadership team has extensive industry experience, they lack a SPAC track record, so my outlook on the SPAC in the near term is a Hold.
AXIOS’ Sponsor Background
AXIOS has 2 executives leading its sponsor, AXIOS Sponsor LP.
The sponsor is headed by:
– Chairman Prof. Dr. h.c. Martin Richenhagen, who has also been Chairman of AGCO, a global manufacturer and distributor of agricultural equipment under various brand names.
– Chief Executive Officer Benedikt Förtig, who was previously General Manager and COO of Elite Agro LLC Serbia and has significant experience in the agriculture, processing, food production, renewable energy and farm technology sectors.
The SPAC is the first vehicle by this executive group.
AXIOS’ Market Potential
According to a 2022 market research report by Prescient & Strategic Intelligence, the central European market for agricultural machinery was an estimated $12.5 billion in 2021 and is expected to reach $18.3 billion by 2030.
This represents a forecast CAGR of 4.3% from 2022 to 2030.
The main drivers for this expected growth are an increase in farmers using technology to compensate for the loss of workers in rural areas.
Also, a rise in advanced technologies providing automation and increased efficiencies within the technology sector is also generating further demand.
AXIOS may also pursue a merger with a target outside the ag machinery industry.
AXIOS’ SPAC IPO Terms
Alpharetta, Georgia-based AXIOS sold 15 million units of Class A shares at a price of $10.00 per unit for gross proceeds of approximately $150 million, not including the sale of customary underwriter options.
The IPO also provided for one-tenth of one warrant per share, exercisable at $11.50 per share on the consummation of an initial business combination and expiring five years after completion of the initial business combination or earlier upon redemption or liquidation.
The SPAC has 18 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.
Stock trading symbols include:
Founder shares are 20% of the total shares and consist of Class B shares.
The SPAC sponsor also purchased 8.445 million warrants at $1.00 per warrant in a private placement. Each warrant will entitle the sponsor to purchase one share of Class A common stock at $11.50 per share.
However, the warrants will not be redeemable by the SPAC and are subject to certain restrictions and registration rights.
Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.
The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor’s 20% equity ownership position.
Commentary About AXIOS
The SPAC is interesting because it is targeting a merger in one of several large markets in the agricultural space, which may present opportunities as a result of recent geopolitical changes such as the war in Ukraine and its effect on grain production, among other aspects.
The leadership team has extensive industry experience in agricultural machinery and other related food processing activities.
But, management does not have previous experience producing investment returns via a SPAC vehicle, so lacks a performance track record.
Investing in a SPAC before a proposed business combination is announced is essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.
So, in a sense, investing in a SPAC can be likened to investing in a venture capital firm as a limited partner.
The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.
In the case of this particular management group, while they have relevant industry experience, there is no previous SPAC track record, which is a negative.
With so many SPACs to choose from, investors can afford to be ‘choosy’ and focus only on those with the strong experience and a previous track record.
So, a lack of SPAC track record for AXIOS means my opinion on the SPAC in the near term is a Hold.
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