June 9, 2020 - A relatively small company with the catchy name of Forum Merger II Corp. (FMCI) has seen its stock rise sharply recently.
FMCI has gained 25% over the last five trading days. If this were a normal company, it could mean the company was growing quickly or had a promising new product.
The problem with Forum Merger is that it doesnt have any products, or even any operating business.
Forum Merger is what is known as a Special Purpose Acquisition Company, or SPAC. Essentially what happens is, an IPO is held to raise money with the goal of using that money, and the new publically traded stock to acquire an existing business.
The companys fact sheet doesnt even specify what kind of company it wants to acquire. Which means that not only are the people bidding up the stock not investing in an operating business, they dont even know what the future business might be.
Typically SPACs go public with the intention of acquiring another company by a certain time or dissolving. FMCIs shareholders recently voted to extend that dissolution date from June 10 to Sept. 30.
Along with the materials distributed ahead of that vote, the company said that it recently signed a letter of intent with a a high-growth, plant-based food company with a broad portfolio of innovative products that are aligned with major food trends and sold through leading retailers and distributors across the United States.
This might be some of the reason for the enthusiasm behind the stock, but lets dig into that a little bit.
Beyond Meat (BYND) is currently the only pure-play plant-based food company. It is a darling of the stock market, but seems to be overvalued by most analysts and traditional valuation metrics.
Impossible Foods is Beyonds biggest rival and is still private, however, back in March raised money at a valuation close to $4 billion.
Impossible is the most exciting potential target for Forum Merger at is has a well-known brand and wide distribution, including to Burger King for the Impossible Whopper.
If Impossible isnt the target, it is likely the market will be disappointed as Forum Merger would be merging with a much smaller, less well-known company.
Even if Impossible is the target, this deal may not be great for FMCI shareholders. FMCI raised about $200 million for a deal. That amount would buy roughly 5% of Impossible Foods at that $4 billion valuation from March. Its possible that Forum Merger could combine with Impossible Foods through a cash-and-stock transaction, but that would be dilutive to FMCI shareholders, leaving them with shares that are potentially worth even less than 5% of the combined entity.
FMCI currently has a market capitalization of about $365.5 million, which is pretty good for a company with no operating business and a balance sheet that is worth right around $200 million.