Live Oak Acquisition Corp

Business Combination with Danimer Scientific: Live Oak Acquisition Corp (NYSE: LOAK) is a shell company, which is mainly focused on doing a merger or business combination with one or more businesses. The company recently announced that it is going to merge with Danimer Scientific, a next generation bioplastics company, that would result in Danimer Scientific becoming a public company. Once the transaction is complete, the combined entity will be renamed Danimer Scientific and it will be listed on NYSE with a new ticker. Several institutional investors have committed to make private investments of $210 million in Class A common stock of the combined company and affiliates of Live Oak have committed to purchase over $50 million of the private investment.

A Quick look at Danimer Scientific: Founded in the year 2004, Danimer Scientific is a high-growth next generation eco-tech company specialised in creating fully biodegradable and compostable bioplastics. The company is known for producing 100% biodegradable plastic feedstock alternative sold under the proprietary Nodax® brand name. The company has strong partnerships with CPG Brands, including Pepsi and Nestle, and key converters such as Wincup and Genpak. For FY19, the company reported total revenue of $3 million and EBITDA loss of $1 million.

What to expect: Post business combination, Danimer is expected to be fully financed to support organic EBITDA growth to $169 million by 2025E. From the year 2020 to 2025, Danimer expects its revenue to grow at a CAGR of 59%. For the same period, the company expects its EBITDA to grow at a CAGR of 140%. Between 2020 and 2022, Danimer plans to spend around $100 million on capital expenditures to build out the Kentucky PHA facility.

Revenue and EBITDA Forecasts (Source: Company Reports)

Key Risks: Due to the events and circumstances that are beyond the control of Live Oak and Danimer Scientific, there is a possibility that the combined business may fail to realise the anticipated benefits of the proposed transaction. Further, the company is exposed to the changes in the domestic and foreign business, market, financial, political, and legal conditions.

Stock Recommendation: The combination of Danimer and LOAK is expected to advance and accelerate the commercialization of Danimer’s PHA. The stock of LOAK has provided a return of 4% in the past three months. On the technical analysis front, the stock has a support level of ~$10.07 and a resistance of $10.30. Considering the proposed business combination of Danimer and LOAK, expected revenue and EBITDA growth of Danimer in the coming years, its strong partnerships with CPG Brands, we believe that the stock price of LOAK may witness further upside. Hence, we suggest a “Speculative Buy” recommendation for the stock at the closing price of $10.25, up by 1.08% on 9 October 2020.

LOAK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Trine Acquisition Corp.

Business Combination with Desktop Metals: Trine Acquisition Corp. (NYSE: TRNE) is a newly organized blank check company formed for the purpose of doing a merger or business combination with one or more businesses. The company recently announced a proposed business combination with Desktop Metal, Inc, a leader in mass production and turnkey additive manufacturing solutions. As per the transaction, TRNE will combine with Desktop Metal at an estimated pro forma equity value of ~$2.5 billion. It is worth noting that, the Boards of directors of both TRNE and Desktop Metal have unanimously approved the proposed transaction. It is expected that the acquisition will be completed by Q4 FY20.

Compelling Investment Opportunity For TRNE: Desktop Metal has one of the fastest metal 3D printing technology in the market, up to 100x the speed of legacy technologies. Desktop Metal operates in the additive manufacturing industry, which is expected grow at a compound rate of 25% over the next decade as the market surges from ~$12 billion in 2019 to an estimated ~$146 billion in the year 2030. TRNE is of the view that with substantial technology moat, deep customer relationships across diverse end markets, and impressive, recurring unit economics, Desktop Metal is well placed to be a leader in a rapidly growing additive manufacturing industry. Hence it represents a compelling investment opportunity for TRNE.

What to expect: The proceeds from the transaction will help Desktop Metal to accelerate its rapid growth and product development efforts. From FY21 to FY25, Desktop Metal’s revenue is expected to grow at a CAGR of 87%. Looking ahead, Desktop Metal intends to maintain its focus on technology and product development.

Revenue and Adjusted EBITDA Forecasts (Source: Company Reports)

Key Risks: If the proposed business combination is not be completed in a timely manner, it could impact the price of TRNE’s securities. Other risks include any changes in laws and regulations affecting Desktop Metal’s business, and changes in the combined capital structure.

Stock Recommendation: The stock of TRNE has corrected by 4.84% in the past one month, and it has provided a return of 9.19% in the last six months period. The stock is currently inclined towards its 52 weeks low price of $9.40, offering a decent opportunity for accumulation. With its proprietary and defensible technology platform, Desktop Metals is primed to be the industry leader. On the technical analysis front, the stock has a support level of ~$10.44 and a resistance of ~11.30. Considering the proposed combination of TRNE and Desktop metals, expected revenue growth of Desktop Metal in the coming five years, and decent industry outlook, the stock of TRNE is expected to move upwards. Hence, we suggest a “Speculative Buy” recommendation for the stock at the closing price of $10.81, up by 0.84% on 9 October 2020.

TRNE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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