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Past Newsletters

May 18, 2020
Welcome to the SPAC Research weekly newsletter.

More on SPAC IPOs
We've only seen two deal announcements this quarter, but the IPOs keep coming. As we've examined over the past few weeks, the market is extracting steeper terms from first-time and lesser-known sponsors than before. Meanwhile, well-known sponsors with great deals on their resumes are still issuing on favorable terms.

But the sector focus of this year's IPOs looks different than it has in the past.

Over 50% of the $7.6bn raised so far this year has come from teams with a broad or general focus, and 28% has focused on technology, media & telecom (TMT).

That is a stark contrast with previous years. SPACs focused on TMT have taken a sizable chunk of the pie since at least 2015. But we're also used to seeing a range of sector specialists represented in the target industry charts from years past.
It's not immediately obvious to us why generalists represent so much of the capital raised this year. Perhaps in Q1, when the market was offering generous terms to all credible sponsors, it wasn't necessary to commit to a specific industry in advance. And now, with the world so uncertain, sponsors are hesitant to box themselves in to a specific sector.

Many observers have pointed out that contrarian deals don't work well for SPACs. And in fact it may be more challenging to sell a PIPE to investors in a sector that's out of favor. But it's believable that sponsors would want to keep their options open as they watch shifting winds across the broader market. At some point, beaten down sectors like hospitality and energy will experience recoveries. And we're very interested to see how SPACs' embedded optionality plays out for deals in those places.

Here's another look at an interesting trend we've seen in 2020: warrant coverage.

SPACs with less than 1/2 warrant coverage per unit have raised almost two-thirds of SPAC proceeds this year. Compare that to last year when a seemingly endless parade of teams raised SPACs between $200-300mm with 1/2 warrant coverage.
Part of that is the shift away from the easy issuance environment of the second half of 2019. But part of it is the correlation between warrant coverage and SPAC size. And as you can see below, SPACs over $400mm in size have raised almost 60% of this year's total, as compared with 17% in 2019.
We've looked before at the impressive returns that larger SPACs have generated for front end investors. So it's not shocking that the market remains excited to invest in larger SPACs, which generally have top tier sponsors.

But SPAC size is also frequently a function of the sponsor's promote. To oversimplify: if you're looking for a $1bn company, then you might raise a $250mm SPAC so that your $50mm promote is more palatable to the target.

Some observers predicted last year that large SPACs would become less frequent. But in the last six months, Virgin Galactic (NYSE: SPCE), DraftKings (NSDQ: DKNG) and VectoIQ (NASDAQ: VTIQ) have caught people's imagination with a hot story and have traded incredibly well. Those companies' share counts are still largely under lockup. But they all have attained mid single-digit billions in valuation and have shown a new model for an incredibly successful SPAC deal.

If you're a sponsor who's looking at unicorns that can still get the investing public excited, and you've got the cash to fund a higher up-front risk purchase, why not shoot for the stars? It's much easier to make concessions with your promote shares in deal negotiations than to ask for more of them later.

News From the Past Week

IPOs and S-1's
  • Jaws Acquisition Corp. (JWS) raised $600mm in an upsized IPO for a growth-oriented target. JAWS is led by Barry Sternlicht, whose resume includes the consolidation of Starwood Hotels & Resorts Worldwide (formerly NYSE: HOT), among other high-profile public market transactions. He currently serves as the chairman and CEO of STWD, a leading, diversified real estate finance company with over $3 billion in market capitalization. Credit Suisse, Morgan Stanley & Citi are joint book-runners.
  • GigCapital3, Inc. (GIK) raised $200mm for an acquisition in TMT. GIK overfunded its trust account to $10.10 and removed optional extensions from its charter, leaving it exactly 18 months to consummate a business combination. GIK is the third SPAC led by Avi Katz, whose first SPAC, GigCapital, Inc. (GIG), acquired Kaleyra S.p.A (NYSE: KLR) in November 2019. GigCapital2, Inc. (GIX) is currently seeking a business combination in TMT. Nomura and Oppenheimer are joint-book runners.
  • Novus Capital Corporation (NOVS) raised $100mm for a smart technology innovations acquisition. NOVS increased its warrant coverage from 1/2 to 1 per unit and reduced the amount of time granted to complete a business combination from 24 to 18 months in advance of its IPO. NOVS is led by Robert Laikin, who has served as the non-executive chairman of the board of Washington Prime Group Inc. (NYSE:WPG) since 2014 and has been the managing member of L7 Investments LLC, a closely held real estate company since 2016. EarlyBirdCapital is sole book-runner.
  • Mountain Crest Acquisition Corp (MCAC) filed to raise $50mm for an acquisition in North America. MCAC is led by Suying Liu, head of Corporate Strategy of Hudson Capital Inc. (Nasdaq: HUSN), a financial services firm operating in China. Liu also served as the chief strategist of Mansion Capital LLC, a privately-held real estate investment firm, and has experience as an investment strategist at JP Morgan. MCAC will over-fund its trust account with $10.20 to start with and is the first SPAC in almost three years to sell a unit with rights but no warrant coverage. Chardan is sole book-runner.

  • B. Riley Principal Merger Corp. II (BMRG) reduced the length of its charter from 24 to 18 months and will look to price early this week.

  • VectoIQ Acquisition Corp. (VTIQ) traded up this week as retail investors got more excited about Nikola Corporation, the company's acquisition target. Shares hit $35 on Wednesday in the highest pre-closing stock price we've ever seen for a SPAC. Warrants traded up as well, though they remained at a significant discount to intrinsic value given they aren't yet exercisable. Here's a look from The Street at the mechanics of a potential forced cashless exercise of VTIQ's warrants. VTIQ also secured an extension through 7/31/2020 to close the deal but intends to hold an approval meeting on 6/2/2020.
Rumors and LOIs
  • Forum Merger II Corp. (FMCI) signed a letter of intent to acquire a high-growth, plant-based food company. Among household names in that category, Impossible Foods recently raised a $500mm series F funding round at a nearly $4bn valuation back in March. FMCI also filed for a 3.5 month extension until 9/30/2020 with no per share monthly contribution to trust.
  • Bloomberg reported that Collier Creek Holdings (CCH) is in talks to acquire potato chip-maker Utz Quality Foods for more than $1 billion, including debt. The companies have been in talks since before the start of the coronavirus pandemic and a deal could be reached as soon as this month.
Deal Amendments
  • Nebula Acquisition Corp. (NEBU) amended its agreement with Open Lending to reduce its enterprise value from $1.3bn to $1.08bn and adjusted the awards and thresholds for seller and sponsor earnout shares.

  • Act II Global Acquisition Corp. (ACTT) amended its agreement with Whole Earth Brands to reduce its enterprise value from $586mm to $516mm. ACTT will hold a meeting 6/15/2020 to approve the combination.

Trust Account Fumble
  • Yunhong International (ZGYH) disclosed that its trust account was improperly invested and suffered an unrealized loss of almost 16 cents per share for the quarter ended 3/31/2020. The company has since recouped nearly half that loss and its sponsor funded the amount of the remaining shortfall to remedy the issue.

Charter Extensions
  • AMCI Acquisition Corp. (AMCI) shareholders approved an extension through 10/20/2020. Approximately 7.1mm (31.2%) public shares shares exercised redemption rights. The sponsor will contribute $0.025 per month for each remaining share in connection with the extension.

  • Leisure Acquisition Corp. (LACQ) filed to extend its charter for an undetermined amount of time with no contribution to trust..

  • CF Finance Acquisition Corp. (CFFA) will hold a meeting 6/15/2020 to extend its charter until 9/17/2020. No contribution to trust was announced in connection with the extension.

  • Gordon Pointe Acquisition Corp. (GPAQ) held a meeting 5/14/2020 to extend its charter. GPAQ’s sponsor bumped its contribution from $0.03 to $0.04 per share for the first month and an optional second month extension. No results from the meeting have been announced yet.

  • LF Capital Acquisition Corp. (LFAC) filed to extend its charter until 6/22/2020 with a contribution to trust TBD.

  • Pure Acquisition Corp. (PACQ) announced it will contribute a fixed $200k to trust in connection with its 5/15/2020 extension meeting. No results from the meeting have been announced yet.

Upcoming Meetings and Deadlines
  • 5/16/2020 AGBA Liquidation deadline (optional extensions remain)
  • 5/18/2020 LGC Charter extension meeting (5/20 liquidation deadline)
  • 5/21/2020 TZAC Charter extension meeting (5/26 liquidation deadline)
  • 5/22/2020 LOAC Charter extension meeting (5/29 liquidation deadline)
  • 5/26/2020 MFAC Charter extension meeting (5/28 liquidation deadline)
  • 5/28/2020 TDAC Charter extension meeting (6/1 liquidation deadline)
  • 5/29/2020 MUDS Hycroft Mining approval meeting

  • Here's a podcast from IR Magazine featuring Phil Denning of ICR talking about investor relations and SPACs.
  • Here's a piece from the WSJ looking at SPACs in the broader IPO context.

Disclosures: Site administrators are long JWS.U, FMCIW, CCH, CCH/W, NEBU, NEBUW, AMCIW, LACQW, CFFAW, GPAQW, LFACW, AGBAR, LGC/W, TZACW, MFAC/W, TDACW and may trade in or out of positions in these or other SPAC securities at any time. Site administrators have a pecuniary interest in GigCapital3's sponsor. Information from is provided for informational purposes only and should not be relied upon as the basis for any investment decision. Nothing on is a recommendation or solicitation to buy or sell any investment.