Last year was an unprecedented one for special purpose acquisition companies (SPACs). Also known as blank-check companies, SPACs have no explicit business plan. Rather, they are to acquire or merge with an unspecified private company, typically within 24 months. If a deal doesn’t occur by the two-year mark, the investment vehicle must dissolve and return the gross proceeds to shareholders.
Although they’ve been around since the 1990s, SPACs gained serious momentum last year. Due to the novel coronavirus pandemic, these investment vehicles became an easier way to go public.
However, the SPAC euphoria has subsided since the U.S. Securities and Exchange Commission (SEC) issued accounting guidance classifying SPAC warrants as liabilities instead of equity instruments. Naturally, SPAC activity has slowed down due to this news. But there are still many SPACs out there looking for targets with serious funds in their kitty.
That brings us to this list of potential targets. It is not certain that these companies will pursue the SPAC route, but they are ideal merger targets because of their long-term growth potential.
SPAC Targets to Watch: Stripe
First up on this list of potential targets for SPACs, Stripe is an online payment processing and credit card processing platform that allows businesses to send and receive payments over the internet.
In its latest round of funding, Stripe raised $600 million, which gives the company a market capitalization of $95 billion. That is approximately triple its last reported valuation of $35 billion from April 2020, according to Pitchbook data.
Today, Stripe is one of the most valuable private fintech companies out there and saw astounding growth during the novel coronavirus pandemic. Excluding what it pays other financial partners to facilitate payments, Stripe generated $1.6 billion in 2020 revenue.
And there is no reason to believe the stellar performance will not continue. Statista data indicates global digital payments are only increasing at a rate of about 12% per year. So, it wasn’t surprising when billionaire investor Bill Ackman held discussions with Stripe last year. Ackman wanted the company to merge with his blank-check company, Pershing Square Tontine Holdings (NYSE:PSTH), but these talks did not prove fruitful.
Regardless, Stripe remains one of the premier targets for SPACs with a $95 billion valuation and excellent growth prospects. However, a Reuters report claims Stripe has “tapped Cleary Gottlieb Steen & Hamilton LLP as a legal adviser on its early-stage listing preparations.” That said, the company has not confirmed anything, meaning the SPAC option is still in play.
Founded in 2017, Modern Health is a mental health and wellness platform. Users can download its application — which is available in 35 languages — and get access to self-service wellness kits, a global network of certified coaches and licensed therapists.
In February — “less than four months after closing a $51 million Series C raise” — Modern Health obtained another $74 million in its Series D round led by Founders Fund. This latest investment raises its valuation to $1.17 billion and brings its total funding to more than $170 million.
Needless to say, Covid-19 augmented the need for direct access to mental-health support at work due to new stressors. Understanding the effects of the pandemic on mental health is critical both on a personal and professional level. That is where companies like Modern Health can play their part (and make money), offering services that allow users to manage their mental health needs proactively.
Considering how crucial mental health is becoming in the workplace, Modern Health can only grow from here. That lands it squarely on this list of potential targets for SPACs.
SPAC Targets to Watch: Virgin Orbit
Next up on this list of potential targets for SPACs, Virgin Orbit — the satellite-launching spinoff of Sir Richard Branson’s Virgin Galactic (NYSE:SPCE) — carried out its first commercial mission as part of its successful rocket launch into Earth’s orbit on Jun. 30.
This caps a pretty eventful few weeks for the company. The enterprise is privately held by Branson’s multinational conglomerate Virgin Group. Abu Dhabi’s sovereign wealth fund Mubadala retains a minority stake as well.
Virgin Orbit employs a modified Boeing (NYSE:BA) 747 aircraft to launch its rockets through an air-launch technique. Instead of launching rockets from the ground, the aircraft carries its LauncherOnes up to altitude before dropping them and firing up the rockets to reach space. According to the company, this is a “more flexible” method than the ground-based technique.
Sky News has reported that the company has held talks with NextGen Acquisition II (NASDAQ:NGCA) to go public. NextGen II has collected a total aggregate of $383 million, grossing $350 million when it completed its initial public offering (IPO) in March as well as an additional over-allotment closing of $33 million in April.
According to the June report, Virgin Orbit was in advanced discussions to go public at about a $3 billion valuation. However, there is no confirmation as of this writing whether the deal is going ahead.
Against this backdrop, it may be easy to get lost in the shuffle. But GitLab, a metadata repository, is too good of a prospect to ignore. The open-source repository allows programmers and coders to track changes in data files with ease. It competes with Microsoft’s (NASDAQ:MSFT) GitHub as well as Atlassian (NASDAQ:TEAM) and has done quite well for itself as more businesses go fully digital due to the pandemic.
Founded in 2014, GitLab was designed by Ukrainian entrepreneurs and now has nearly 1,300 employees. The company also recorded $150 million in revenue in 2020.
This firm has done 11 funding rounds according to Crunchbase, raising over $430 million. Some of the lead investors in the firm have been Goldman Sachs (NYSE:GS), Iconiq Capital, Light Street Capital and Two Sigma Private Investments. Most recently, GitLab raised an impressive $195 million, putting its estimated valuation at approximately $6 billion. That makes it an attractive prospective target for SPACs.
SPAC Targets to Watch: Udemy
Like with remote work, the pandemic also ushered in a new level of popularity for studying and learning remotely. People stuck at home — many of them newly unemployed — wanted to learn new skills and utilize their time effectively. That is why Udemy is one of the hottest unicorns out there at the moment.
This company was founded in 2009 by Eren Bali, Oktay Caglar and Gagan Biyani. Since its launch, Udemy has grown exponentially. It now boasts 40 million learners and more than 155,000 classes, many of which sell for just $10 to $20.
The online learning platform has closed on over $273 million in funding for a valuation of $3.25 billion. In October, the company also announced that its business division exceeded $100 million in annual recurring revenue (ARR).
Next up on this list of potential targets for SPACs is Cedar. According to Forbes, he U.S. spends roughly $500 billion on healthcare administration not directly related to providing care every year. Launched in 2016, Cedar — named after the tree due to its medicinal qualities — aims to address this issue.
Every year, more than 12 million patients across 35-plus healthcare providers use Cedar to check their insurance, pay a copay before the visit and settle outstanding bills. However, there was an important lynchpin of the strategy that was previously missing: insurance.
Fortunately, that end has been taken care of as well now. In May, Cedar announced a $425 million purchase of Ooda Health for a mix of cash and equity. The move was fueled by a $200 million cash injection in March led by Tiger Global Management, which valued Cedar at $3.2 billion.
This acquisition allows for the merger of the provider and insurer products. As such, Cedar will now turn its attention toward new products focused on the back-end of speeding up payments between insurers and providers, tackling issues such as prior authorization. When consumers understand what they’re paying and why, they are more inclined to pay their bills, greatly reducing the administrative burden.
“We want to bring the digital healthcare experience on the financial side to the 21st century to make it personalized, immediate, transparent, and convenient,” says CEO Florian Otto. “Cedar is the only company that can really build this because we have this trifecta of the provider, the patient and the payer together.”
SPAC Targets to Watch: Impossible Foods
Last up on this list, Impossible Foods develops plant-based substitutes for meat products. Due to the nature of its business model, it has become a favorite for environmentally conscious consumers. But there is a lot of financial muscle behind this one as well, making it a potential favorite for SPACs.
Based in California, this company is mulling over a public listing that could give it a valuation of $10 billion, according to a Reuters report. In 2020, U.S. plant-based retail sales hit $7 billion, up 27% year-over-year (YOY). So far, Impossible Foods has also raised $1.5 billion through private equity. Impossible Foods is reportedly looking to list within the next 12 months, either through a traditional IPO or a merger with a SPAC.
This company aims to give people the taste and nutritional benefits of meat without the adverse health and environmental impacts of livestock products. Clearly, this is striking a chord with investors and consumers.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.