Finance

A frothy SPAC market and a damning article clued short seller Spruce Point Capital in on its newest target: bioplastics company Danimer ($DNMR)

  • Danimer Scientific has numerous red flags, according to short-seller Ben Axler.
  • The bioplastics company was taken public in a $525 million SPAC deal at the end of 2020.
  • “No one has done this at scale,” Axler told Insider about the company’s business.
  • See more stories on Insider’s business page.

Spruce Point Capital, the $226 million short-seller run by Ben Axler, has found its latest target in the froth of the SPAC market.

Danimer Scientific, a Georgia-based bioplastics company, went public in a $525 million SPAC deal with sponsor Live Oak Acquisition Corp., which was led by former FBR & Co. CEO Rick Hendrix. The stock of the newly merged company— like many SPACs after they find a target — has surged, but Axler told Insider he is skeptical the company can meet the lofty goals it lays out in public documents.

The company is trading at roughly $25 a share, and the company’s market capitalization is more than $2 billion after going public at the SPAC price of $10 a share in December.

Axler zeroed in on the company as his firm tracked newly public-via-SPACs companies when the Wall Street Journal wrote a piece in March questioning how legitimate the firm’s biodegradable plastics actually are.

Danimer says it is “making the future of plastics possible” by creating biodegradable plastics that will help cutback on pollution and landfills.

The firm has partnered with Nestle and Bacardi, and once counted Pepsi as an investor, but the process of creating a new chemical from scratch is incredibly complicated and resource intensive, Axler said. He’s doubtful the company can scale to the point that it meets its valuation, especially as the price for the main ingredient for its plastic substitute — canola oil — continues to rise.

“This is a company with a single factory in Georgia that is building another one in Kentucky, which is delayed by the way,” Axler said. “No one has done this at scale.” He cites the attempt to do this by Metabolix, now known as Yield10 Bio, which spent hundreds of millions on the development of a new biodegradable plastics compound only to be sold for $10 million in 2016.

Danimer posted a rebuttal to the Wall Street Journal story on its website. It was written by a University of Georgia professor — a school that Danimer has worked closely with and funded research at, Axler’s team found.

Beyond the scientific challenges, Axler’s report lays out red flags of executives at Danimer, including CEO Stephen Croskrey and CTO Phil Van Trump. Croskrey was the president of body armor company Armor Holdings when it was investigated by the Department of Justice for defective products, resulting in a $30 million settlement, and Van Trump has a ten-year-plus gap on his bio that does not address where he was before Danimer, Axler’s report states.

Spruce Point declined to share the size of its short position on Danimer. The company did not immediately respond to requests for comment.

This might be the start of many bets against overvalued SPAC targets for Axler.

“There’s no question there’s going to be some poor companies going public. It’s a basic supply-and-demand question, and right now there’s a big supply of SPAC money,” he said.

Sponsors and early investors in SPACs often end up making money no matter what in these deals thanks to generous protections and fees, while those who invest after a deal is announced can end up holding the bag.

“There’s a finite amount of good growth companies,” Axler said.

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