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April 22, 2019
Welcome to the SPAC Research weekly newsletter.


Post- Business Combination Stock Performance, Round 2

In our March 11 newsletter, we compared the stock price for post-business combination SPACs against the aggregate percentage of redemptions experienced throughout that SPAC's life. This week, we took a look at another predictor for post-business combination performance: how long does it take the SPAC to announce and close a deal?
Quicker deal announcements have yielded better results. Perhaps it's not that surprising; negotiations that take place early on in a SPAC's life are less impacted by the pressure of a clock that's ticking louder and louder as the liquidation date approaches. And the less time that remains, the more challenging it is to deliver certainty of deal closure to both an acquisition target and to buy side investors.

Nevertheless, it's pretty dramatic to see how many of the best outcomes are clustered among SPACs that announced their deal in the first 15 months after IPO. And the only two SPACs trading above $10 which announced deals more than 700 days after their IPO are Williams Scotsman (Double Eagle Acquisition Corp) and Waitr Holdings (Landcadia Holdings).

Next, we'll look at the visualization of a similar phenomenon: when did a SPAC's business combination closing occur relative to its original liquidation date (before any optional or shareholder-approved extensions)?
It's another powerful trend. SPACs that close their business combination in advance of their original liquidation deadline have performed materially better post-closing.

We do want to point out here that $10 isn't necessarily a universal benchmark of stock performance. Many SPACs at the end of their life end up closing deals with PIPEs at lower prices than the cash per share in their trust account. It may not be the best use of the SPAC structure (why raise a trust account if you're not going to use it to fund a deal), but if all of the shareholders at closing are sellers, sponsors, or PIPE investors, it seems most fair to compare a company's stock performance against the effective price paid by those PIPE investors at closing.

One takeaway from this chart may simply be that a lower priced PIPE (or agreement with a subset of common shareholders not to redeem) is more likely as a SPAC gets past their first extension. We will be watching this dynamic carefully as SPACs with Crescent Terms approach their initial liquidation window.


SPACs in the news

Here's a story from the WSJ about the decline of Alta Mesa (NASDAQ: AMR) since Silver Run II closed its deal in February 2018. While it's undeniable that AMR has been a colossal failure, we continue to be disappointed in the way in which financial journalists cover SPACs. In particular, the article notes that "more than 60% of the energy companies acquired by SPACs since 2016 are worth less now than when they began trading publicly," although a detailed look at those SPACs reveals that the remainder have tracked the performance of the SPDR S&P Oil & Gas Exploration & Production ETF (NASDAQ: XOP) fairly well.
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IPOs and S-1's
  • Landcadia Holdings II, Inc. (LCA) filed to raise $250mm for an acquisition in the consumer or hospitality space. Landcadia will be led by Tilman Fertitta, owner of the Houston Rockets, the restaurant conglomerate Landry's, and the Golden Nugget Casinos. Landcadia II maintains essentially the same team as Landcadia I, which acquired food delivery app Waitr Inc. (NASDAQ: WTRH) in November 2018. Jefferies is sole book-runner and co-sponsor.
  • Health Sciences Acquisitions Corporation (HSAC) filed to raise $100mm for an acquisition in biopharma & medical technology. HSAC will be led by CEO Roderick Wong, MD, the founder of RTW Investments, a healthcare-focused firm with $1.9bn in AUM. HSAC's team is full of advanced degrees, with another four MDs on the board.
Deal Announcement
  • Twelve Seas Investment Corporation (BROG) announced an agreement to merge with Brooge Petroleum and Gas Investment Company, a UAE-based company developing oil terminal operations in the Port of Fujairah. Brooge will sell 100% of its equity to Twelve Seas in exchange for 100mm BROG common shares. In an interesting move, Twelve Seas changed their ticker symbol from "TWLV" to "BROG" last Friday afternoon (4/12/2019), the business day before their announcement (apparently to satisfy a covenant of the business combination agreement itself). So far, we have a press release and the business combination agreement; we'll be watching for an investor presentation and hopefully a conference call this week.
  • KBL Merger IV (KBLM) announced a non-binding term sheet for a business combination that includes a working capital loan and potential extension contribution from the target, in addition to an up to 66% transfer of the sponsor's promote to a shareholder of the target company.
Charter Extension
  • GigCapital (GIG) filed a preliminary proxy for a charter extension from 6/12/2019 until 12/12/2019 to allow its acquisition target, Kaleyra, sufficient time to prepare audited financial statements in accordance with SEC requirements for inclusion in a proxy statement. No per-share contribution is included.

Shareholder Meeting Un-scheduled
  • MTech Acquisition Corp. (MTEC) filed a revised preliminary proxy updating their shareholder meeting date to approve the business combination with MJ Freeway to TBD. As a reminder, their meeting was originally scheduled for 3/12/2019 but no defintiive proxy was ever filed. Closing is now anticipated during the second quarter of 2019. MTech also entered into an amendment to their merger agreement, allowing the target an additional director appointment to the board of the combined company.

Upcoming Events this week
  • CM Seven Star Acquisition (CMSS) will hold a shareholder meeting on Wednesday 4/24/2019 to approve their business combination with Kaixin Auto Group. If approved, CMSS and Kaixin will need to close by 4/30/2019, which is both the deal's Outside Date and CMSS's liquidation date. The definitive proxy describes a max redemption scenario of 20,413,626 CMSS public shares (99%) to allow for deal completion.
  • Pensare Acquisition Corp. (WRLS) will hold a shareholder meeting on 4/26/2019 to extend their charter from 5/1/2019 until 8/1/2019, in order to consummate their business combination with TPx Communications. Pensare's sponsor has been contributing $0.033 per share, per month to the trust account but does not intend to make any further extension contributions, indicating they will likely need to increase the amount of alternative financing they are seeking if they hope to meet the deal's $415mm minimum cash condition.
Disclosures: Site administrators are long GIG, GIG/W, GIG/R, MTECW, BROGW, BROGR, KBLMW, KBLMR, CMSSW, CMSSR, WRLSW & WRLSR and may trade in or out of positions in these or other SPAC securities at any time. Nothing on spacresearch.com is a solicitation to buy or sell any investment.