Will Rover SPAC Be Best Of Breed — Or A Howler?

On Wall Street, one sign that things may be getting overheated — particularly when it comes to public listings — is when less traditional business models start announcing plans to join the fray.

Strike while the iron’s hot, as they say.

And perhaps no (proverbial) iron is as hot as the realm of SPACs — short for special purpose acquisition companies. The new year has just dawned and already there are 145 SPAC initial public offerings (IPOs), more than half of the total number seen in 2020, as estimated by SPAC Research.com.

As has been noted in this space, SPACs raise money from investors, and look for acquisition targets, and take them public. There’s usually a window of time (in some cases two years) in which the investment vehicle finds, and buys, a target company. If backers do not like the proposed deal they can vote with their feet and withdraw their funds.

Now joining the ranks is Rover, an online pet care marketplace. Earlier this month, per a release, the online pet care marketplace stated that it will come public (on the tech-heavy NASDAQ) through a merger with Nebula Caravel Acquisition Corp., which is a SPAC. That transaction will close by the end of the first half of this year.

As reported by Crunchbase, the transaction values Rover at an enterprise value of $1.4 billion, and the market cap upon listing may be $1.6 billion.

The company exists as an online network that connects pet owners with services such as pet sitting and dog walking. The firm said that, cumulatively, 2 million “pet parents” have used the platform, with 500,000 providers paid, and that 70 percent of users rebook. Roughly 68 percent of gross booking value comes from boarding and house sitting done overnight, according to the materials.

As to what investors get when they buy in: Rover said in an investor presentation filed this month that its annual gross booking value soared from $16 million in 2014 to $436 million in 2019. Perhaps no surprise, the pandemic has dented momentum, where gross booking value slipped by nearly half, to $233 million. Along the way, revenues grew from $71 million in 2018 to $95 million in 2019, before diving to $48 million last year. The company said revenue growth should be about 100 percent this year to $97 million.

The SEC filing Nebula made in tandem with the announcement states, “When we look further into the future, we believe that COVID-19 has created a number of tailwinds to accelerate progress towards our mission. For example, while demand for pet care decreased under travel restrictions, shelter-in-place orders, and work from home requirements beginning in March 2020, leading to a decline in our revenue for the remainder of 2020, pet adoptions simultaneously skyrocketed.”

Red Ink For Now — And Later

Like many tech-oriented firms, including platforms, revenues may have tailwinds, but losses have been accumulating. The firm said that for the nine months that ended in September, operating losses stood at $45 million, compared to $40 million in the previous year.

“Since inception, we have incurred operating losses and negative cash operating cash flows and have financed our operations through the sale of equity securities and the incurrence of debt. We expect that operating losses and negative operating cash flows could continue into the foreseeable future as we continue to invest in growing our business,” noted the filing. Now: growth takes money, and losses are usually in the picture when growth is a primary strategic objective. But it remains to be seen what investors are willing to pay for losses all through the horizon.

We’re in a lofty market, after all, in one of the more heated spaces (SPACs), and even the pet vertical is getting crowded, though not in a direct competitive sense (through platforms). Consider the fact that BarkBow, focused on pet supplies, also has been tied to a SPAC. In the meantime, SPACs must hunt for new targets, under the gun of their two-year timeframes, or be dissolved. The pressures may force high valuations for companies that don’t make money, until the bubble bursts.

All of which begs the question, and pardon the puns: Will Rover be leader of the SPAC or will the whole SPAC trend roll over?

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