December 9, 2019
Welcome to the SPAC Research weekly newsletter.

SPAC Conference 2020
The agenda is out for the SPAC Conference 2020, to be held February 6, 2020 at the Crowne Plaza Times Square in New York City. SPAC Research Founder Benjamin Kwasnick will give a presentation on "SPACs by The Numbers" about the quantitative elements of SPAC IPO activity and pre- and post-business combination performance and trading. Note: SPAC Research subscribers who wish to attend are eligible to save $100 until the end of December. Register here and use Coupon Code RESEARCH2020 to save $100 now.


Post-Business Combination Performance vs. Benchmarks
In recent months, we've examined performance for SPACs post-business combination, and explored measurements for deSPAC-ing success. We've been using a new lens to examine SPAC business combinations, tracking the amount of equity actually sold at each deal closing (with unredeemed public shares considered sold at the per-share amount remaining in trust). We like that metric because it shows the dollar value of shares the SPAC was able to move into the hands of fundamental investors in the target company. It also provides a much cleaner endpoint against which to measure the present value of the target company.

We saw that large SPACs (those over $250mm in size) have represented an overwhelming majority of the total equity sold at deal closings in the past few years. And a sector breakdown revealed that SPAC deals in the energy space were down more than 60% in the aggregate since closing, while other closed SPAC deals are in the black.

We have frequently lamented how financial journalists and market commentators point to the number of closed SPAC deals with stock prices in the low single digits as evidence that SPACs destroy shareholder value. It's true there have been some notable flops among former SPACs. But our study in March showed that most of the closed deals that have traded poorly redeemed the majority of their shares sold at IPO and have little in the way of a public float.

Additionally, stock price alone is a shallow measure of performance. So we took each of the 68 SPAC deal closings since 2016 and measured the present value of the equity sold at closing.

Taking that analysis a step further, we also compared each of those deals to a benchmark and measured that benchmark's performance since deal closing. We used the Invesco S&P SmallCap sector ETFs for companies with a clear BICS classification, and we used the iShares Russell 2000 ETF (ARCA: IWM) when there wasn't an obvious sector comparison. The result is a percentage that represents how much each SPAC deal has over- or under-performed its benchmark since the deal closed.

An example: the rightmost dot on the chart below is FGL Holdings (NYSE: FG), formerly CF Corp. (CFCO). That deal sold $1,764mm worth of equity at deal closing ($694mm worth of unredeemed public shares and $1,070mm in forward purchase, anchor and PIPE commitments -- at an average price per share of $10.02). Those shares are worth $1,573mm today at a common stock price of $8.94, for a decline of 10.81%. Meanwhile, the Invesco S&P Small Cap Financials ETF (NASDAQ: PSCF) is up 0.79% since 11/30/2017, meaning FG has trailed its benchmark by 11.6% since closing.

• Gores Holdings IV (GHIV) filed to raise $400mm and become the second issuer to IPO with 1/4 warrant coverage in each unit. Gores IV will be Alec Gores' fifth SPAC. The first two consummated successful business combinations that now trade as Hostess Brands Inc. (NASDAQ: TWNK) and Verra Mobility Corp. (NASDAQ: VRRM) -- both of which closed Friday above $14. Gores III (GRSH) recently announced a $1.5bn transaction with government contractor PAE. And Gores Metropoulos Inc. (GMHI), which raised $400mm in February, is still seeking a business combination target. Aside from the 1/4 warrant coverage, Gores IV is similar in terms to previous Gores SPACs, with warrants that include a redemption for stock mechanism and a $750,000 annual working capital withdrawal allowance from trust account earnings. But the sponsor's risk capital will come in the form of warrants purchased at $2 each, a slight giveback to IPO investors for the reduced warrant coverage. Deutsche Bank is sole book-runner.
  

• TKK Symphony Acquisition Corporation (TKKS) extended its tender offer again, until Monday 12/16/2019. It's unclear exactly what prompted the extension, although the most recent tender offer documents included additional China-related risk factors. Approximately 21mm shares (84.2%) had been validly tendered as of the extension.

• Regalwood Global Energy Ltd. (RWGE) will redeem all outstanding public shares effective 12/16/2019 for approximately $10.37 each rather than contribute to trust to try and extend the company's charter.
  

• Legacy Acquisition Corp. (LGC) announced an amendment to its deal with Blue Valor that will cause its sponsor to forfeit up to half of its 7.5mm promote shares, depending on the funds available from LGC's trust account at closing. The forfeiture will kick in if the trust account contains less than $270mm at closing, with the full 3.75mm shares forfeited if public redemptions bring the trust account below $120mm. The company also announced it would pursue the possibility of a tender offer for outstanding warrants after the deal closes.
  

• Reuters reported that GS Acquisition Holdings Corp. (GSAH) is in talks to acquire US backup power equipment firm Vertiv for more than $5bn including debt. Vertiv is a portfolio company of Platinum Equity, the private equity firm founded by serial SPAC sponsor Alec Gores' brother, Tom Gores. Platinum Equity has plenty of experience taking companies public via the SPAC route. The company sold smart transportation firm Verra Mobility to Gores Holdings II back in 2018, and agreed to sell government contractor PAE to Gores Holdings III last month.