The synthetic biology firm Ginkgo Bioworks will become a publicly traded company later this year by merging with a special purpose acquisition company, or SPAC. The deal will put $2.5 billion in Ginkgo’s pocket and value the firm at $17.8 billion overall.
At the same time, some stock traders are betting against the green polymer technology firms PureCycle Technologies and Danimer Scientific, which recently did their own SPAC mergers, accusing the firms of having weak core technology and shady ethics.
In a SPAC merger, a privately held firm goes public by merging with a company specially created for the purpose. The route to the stock market is faster and less onerous than the normal route of an initial public offering (IPO) of stock.
In the case of Ginkgo, it will merge with the publicly traded Soaring Eagle Acquisition Corp., which is valued at around $1.7 billion and has been pledged another $775 million. The combined firm, to be called Ginkgo Bioworks Holdings, will be worth $17.8 billion and be 84% owned by Ginkgo’s current owners.
Anna Marie Wagner, Ginkgo’s senior vice-president of corporate development, says the SPAC route “gives us the capital to scale our platform and acquire and invest in companies faster than a traditional IPO.”
Ginkgo’s top executives, Jason Kelly and Reshma Shetty, will continue to lead the new firm. Soaring Eagle CEO Harry Sloan will join Ginkgo’s board along with Arie Belldegrun, a well-known biotech executive. Belldegrun’s investment firm, Bellco Capital, is cosponsoring the deal with Soaring Eagle’s parent company.
Firms like Ginkgo that position themselves as prioritizing sustainable environmental, social, and governance practices, or ESG, are a hot commodity. “You’ve got a lot of money out there looking for so-called ESG-qualifying investments,” says Richard Youngman, CEO of the research firm Cleantech Group. “SPACs are a part of that mega-trend. They offer speed, years of funded runway, and take a lot of the procedural load of going public off the plates of the tech company executives.”
But that speed and lack of procedure can cut both ways. Two cleantech firms that recently did SPAC mergers have attracted the attention of short sellers, traders looking to make a profit when the price of a target company’s stock goes down.
Polypropylene recycler PureCycle went public via a SPAC merger in March, a deal that valued it at $1.2 billion. On May 6, the short seller Hindenburg Research released a lengthy report titled “PureCycle: The Latest Zero-Revenue ESG SPAC Charade, Sponsored By The Worst Of Wall Street.”
The report paints PureCycle as a bad investment based on factors including the track record of its executives and the strength of its core technology, a solvent-based plastics recycling method licensed from Procter & Gamble.
PureCycle dismisses the report in a press release, saying it “is primarily designed to drive down the stock price in order to serve the short seller’s economic interests.”
Similarly, the bioplastics maker Danimer did a SPAC merger in December 2020 that valued it at $890 million. In late April and early May, Spruce Point Capital Management published a pair of reports saying Danimer overestimated prices and production by 30% or more as it went public, among other complaints. “We believe the hype around SPACs at the time resulted in a lack of due diligence that would have otherwise likely uncovered these concerns,” the report says.
Danimer counters that Spruce conflated data required by federal financial regulators with that reported to state environmental regulators. It also points to supply and R&D deals with Mars, PepsiCo, Bacardi, Nestlé, and Dunkin’ Donuts as evidence of real demand.
Meritorious or not, the short-seller reports seem to be working. PureCycle’s stock price has dropped 45% since Hindenburg released its analysis, and Danimer’s stock is down 26%. The overall stock market has been relatively flat over the same time.
Youngman says, however, that SPACs and the new capital they’re making available are a more important trend than short-sellers for the cleantech world. “They’re looking to pick up the next growth story,” he says. “Clearly the traditional route is not making it sufficiently attractive.”
This story was updated on May 13, 2021, to correct Jason Kelly's first name. It is Jason, not John.