Origin Materials Makes Big Corporate Net-Zero Pledges Plausible
Origin Materials extracts chemicals from plants that are used to make an environmentally friendly version of plastic
Merger with SPAC Artius Acquisition Inc. (NASDAQ: AACQ)
Partnerships include the food industry giants Danone S.A., Nestlé S.A. and PepsiCo, Inc.
Contracts worth more than one billion US dollars cover sales projections for the next few years
Boon Sim, a former executive of Temasek Holdings (Singapore's sovereign wealth fund), will be on board
Founder and accomplished engineer John Bissell and former Shazam CEO Rich Riley will be co-CEOs
The company sees $ 475 million in Ebitda by 2025
Revenue is expected to grow 140% on an annual basis from 2023 to 2026 and 48% in later years
A company value of 1 billion US dollars means roughly twice the sales in the base case 2025 and is thus far below the disruptive peers
By Jarrett Banks and John Jannarone
From a surge in net-zero announcements to the new book by Bill Gates to the manifesto by Larry Fink, CEO of BlackRock, a profound change is taking place. Wall Street institutions, businesses, and governments are looking for ways to decarbonize, and investors must pick a horse to follow the trend.
With a contract worth more than $ 1 billion forecasting sales for the next few years, California-based Origin Materials, which extracts chemicals from plants that are used to make an environmentally friendly version of plastic, fits the bill. Companies such as Danone S.A., Nestlé S.A. and PepsiCo, Inc. agree - they are both customers and investors of Origin.
Origin is merging with the special purpose vehicle Acius Acquisition Inc. (AACQ), whose shares will automatically be converted to Origin upon completion of the transaction. The deal will raise around $ 863 million in cash and is expected to fund Origin until it becomes profitable around 2025. In addition, Origin will have a market cap of around $ 1.9 billion.
Origin has been developing proprietary technologies for 12 years that convert sustainable plant-based feeds into a range of materials. The company starts with a raw material made from wood chips that it grows and then processes it into materials like sustainable PET, a raw material product that is used to make plastic bottles, textiles, cars, durable goods, clothing and carpets. It also has price parity with fossil fuels.
While much attention has been paid to President Joe Biden's electric vehicle plan, the use of fossil fuels in product manufacturing must also be greatly reduced. Consumer goods account for 22 percent of all carbon dioxide released into the atmosphere.
Governments and some of the world's largest corporations have pledged to reduce carbon emissions to zero over the next few decades, which is about 14 percent of global GDP. For example, General Electric has committed to zero carbon emissions from all processes by 2030.
Origin is also seeing significant traction in three end markets beyond single-use plastics. The total available market is estimated at $ 1 trillion with applications in multiple end markets. Just this week, Origin signed a contract with the South African chemical company AECI to develop clothing and automotive fibers with a negative carbon footprint. The company then signed another agreement with AECI Much Asphalt, the largest asphalt producer in southern Africa, to develop low-carbon asphalt.
Origin projects around $ 475 million in Ebitda (not assuming a green premium) from two new factories in 2025. The first will be completed in late 2022 and will operate in Sarnia, Ontario.
The company is on a hiring spree to build a major plant called Origin 2 by 2025. Further plants will follow. Origin's customers currently use 4.75 million tons of plastic per year, or the equivalent of 20 plants. The PET market is growing by $ 15 billion annually.
Artius founder and managing partner Boon Sim, a former executive of Temasek Holdings (Singapore's sovereign wealth fund known as one of the most sophisticated in the world), will be on board after the merger. Founder and trained engineer John Bissell, who has led the business since 2008, will co-CEOs with former Shazam CEO Rich Riley.
The company already has an impressive and diverse group of shareholders, all of whom are pouring their equity into the deal. And according to an SEC announcement, new investors are joining, with the hedge fund Millennium Management LLC achieving a share of 6.3 percent.
Another potential boost will come from post-contract investments. Many institutional investors starving for ESG games are waiting to graduate because they cannot buy SPACs. As an added ESG bonus, Origin sources its wood chips from rural areas and provides pulp mill jobs to help conserve forest communities.
Almost anyway, Origin looks like a deal a little over $ 10 a share. A simple comparison is Danimer Scientific, Inc., which went public on a SPAC and is now trading at $ 38 after hitting its most recent high north of $ 50.
From a multiple perspective, Origin is trading at enterprise value roughly twice its base case sales in 2025, which is likely a very conservative estimate. According to Mentieo, an AI-enabled research platform, Beyond Meat, Inc. is trading at 4.8x consensus sales in 2020. Tesla trades 7 times and Lonza Group AG 5.8 times.
With proven technology that can make a profit with a decent amount of funding and carbon neutral manufacturing as the future, Origin offers investors reason to start their own promise: buy the stocks before more of the world takes notice.
IPO Edge Contact:
Jarrett Banks, editor-in-chief
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