Wholesale e-Commerce Platform Boxed to Merge with Seven Oaks SPAC

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The COVID-19 pandemic drove a surge in demand last year for delivery services as consumers ordered items from the safety of their homes. That boosted Boxed, a wholesale e-commerce platform that announced on Monday that it is merging with special purpose acquisition company (SPAC) Seven Oaks Acquisition (NASDAQ: SVOK). 

The SPAC market has cooled off in recent months. It used to be that SPAC stocks would jump once a definitive agreement was reached, but Seven Oaks stock barely budged and is still trading below its $10 net asset value (NAV). This suggests investors aren’t particularly excited about the deal.

The business of Boxed

The company specializes in selling consumable items in bulk at wholesale prices to both consumers and businesses alike. Think of it like an online version of Costco (NASDAQ: COST), but without the membership fees. The company offers a wide variety of categories, including home essentials and groceries as well as office supplies. The platform also incorporates other services such as ads and a software-as-a-service (SaaS) subscription offering for merchants. 

Boxed says that its typical consumer is a household that lives far from a Costco, with an average order value of approximately $96. Business customers, which are usually corporations or small- and medium-sized businesses (SMBs), expectedly spend more with an average order value of around $198.

There were 452,000 active customers in 2020 that collectively bought up $158 million in gross merchandise value (GMV) last year. On the business-to-business (B2B) side of the business, there were 24,000 active customers in 2019 that generated $35 million in GMV. In contrast to the business-to-consumer (B2C) segment, B2B took a hit during the pandemic as retail sales declined. Boxed is optimistic that B2B is poised to rebound as vaccines help get the virus under control in the United States.

Total revenue in 2020 was $187 million, and additional monetization initiatives are still in the early innings. Just $12 million in SaaS revenue is contracted for 2021, and advertising technology revenue is currently less than 1% of sales. Boxed is forecasting that it can grow its top line to over $1 billion by 2026, predicated on the goal of expanding market share in the $100 billion market for online groceries in the United States. SaaS revenue is expected to reach $106 million in 2026.

A modest valuation

Many SPAC deals have been criticized for granting lofty valuations to the target company, oftentimes billions of dollars. Boxed has fetched a post-money equity valuation of $887 million, which seems more reasonable than some of the other blockbuster deals that investors have balked at.

Seven Oaks has roughly $259 million in cash in its trust account, and the PIPE (private investment in public equity) will add another $120 million to the transaction. The latter figure includes $32.5 million in stock and $87.5 million in convertible notes being sold to institutional investors such as Brigade Capital and Avanda Investment Management. Those bonds will have a conversion price of $12 and mature in five years.

Software intelligence company Palantir Technologies (NYSE: PLTR) is the main PIPE investor buying stock, agreeing to invest $20 million as part of a subscription agreement with Seven Oaks. Palantir has been quite active in the SPAC market.

The merger is expected to close in the fourth quarter.

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