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Past Newsletters

July 20, 2020
Welcome to the SPAC Research weekly newsletter.

Bigger is Better?
We've explored a number of factors in the past that are correlated with how well SPAC deals trade after closing - redemption count, focus alignment, speed of deal closing, and sponsor concessions.

This week, we wanted to tackle another piece of conventional wisdom -- the link between stock performance and enterprise value of SPAC targets.

In many ways, it makes sense that larger deals would perform better. Historically, SPAC IPO investors have been yield-seeking, and in many cases unable or unwilling to hold onto shares in the post-combination entity. So a SPAC transaction relies on moving as many shares as possible from IPO investors to would-be fundamental investors in a target company. And there's a much larger base of investors interested in, say, mid-cap tech companies, than there is in micro-cap businesses focused on a niche geographic region.

So we took all the closed SPAC deals since 2016 and broke them up into cohorts by the anticipated enterprise value of the newco. You can see the average stock price by cohort below.
Bigger deals have traded significantly better than smaller deals over the past four years.

We plotted all the deals on the scatter chart below so you can see the shape of the entire universe.
We colored this year's deals in red to highlight how this year has featured more large SPAC deals than ever. And 2020's four largest closed deals are all trading extremely well (though you can see here that the chart above also looks similar if you use median results instead of average results).

It's also worth remembering that SPACs by definition have a fixed public float. We explored the relationship between float rotation and stock price in a newsletter last month and discovered a correlation between the turnover rate of a SPAC's float and how it trades before deal closing.

All else being equal, larger businesses (and particularly businesses that are household names) often generate greater buy-side demand. But no matter how much demand there is, it must necessarily be filtered through a fixed number of shares until and unless the company registers locked up shares or executes a follow-on offering.

So while Nikola (NASDAQ: NKLA) is still a shining example of a successful SPAC deal, look at the decline in the company's stock price once the registration statement covering its PIPE shares and shares issuable to warrantholders was declared effective earlier this month.

Meanwhile, there's also a meaningful relationship between current stock price and the EV/Trust Multiple - that is, the size of the acquired business relative to the initial size of the SPAC's trust account. For example, a $200mm SPAC that acquires a $1bn business would have an EV/Trust Multiple of 500%.

But we also have to point out the challenges of using enterprise value for some SPAC deals. The EV calculation relies on using a $10 per share trust value for market cap, even for situations that quickly trade away from that number. There are numerous examples like Hunter Maritime's acquisition of NCF Wealth Holdings, a deal that referenced a $2bn enterprise value for a company that ended up with almost no public float and traded down under $2 relatively quickly.


To attempt to adjust for those situations, we took out all the SPACs with rights included and those focused outside North America.
A high EV/Trust Multiple isn't a universal predictor of success, but you can see the connection with three of this year's most successful outcomes. Those deals have generated a lot of interest, especially relative to their float size. They'll also be deals to watch carefully when PIPE shares get registered and when lockups expire 6-12 months after closing.

One more note: 2020 has already broken last year's record for enterprise value taken public via SPAC, with $27.4bn in closed deals and nearly that amount again in the pending column.
If it seems like every financial media outlet is writing about SPACs these days, it's because they are. You can read the chart above as a proxy for SPACs' growing slice of the pie of the public listing market for operating companies. It's clear that any company considering an IPO is taking a SPAC listing seriously at this point, which means this year's record SPAC IPO crop is likely keeping quite busy.
SPAC Alpha
Our research platform SPAC Alpha released a report this week on the Landcadia Holdings II deal to acquire Golden Nugget Online Gaming. See below.

News From the Past Week

IPOs
  • Pershing Square Tontine Holdings, Ltd. (PSTH) raised $4bn to acquire a private high-quality growth company. See here for our analysis of this SPAC and its unique tontine warrant structure. Citi, Jefferies and UBS are joint book-runners.
  • Ascendant Digital Acquisition Corp. (ACND) raised $360mm in an upsized IPO for an acquisition in interactive (digital) entertainment. ACND is led by CEO Mark Gerhard and President David Gomberg, co-founders of Disruptional Ltd (fka Playfusion Ltd), an AI technology and gaming studio involved in creating a next generation mixed-reality platform. COO Riaan Hodgson is the COO and CFO of Beauty Labs international, a technology company that provides AI applications for beauty brands. ACND also sports a $250mm forward purchase agreement with Nexon Co., a Korean-Japanese online video game publisher. UBS is sole book-runner.
  • East Resources Acquisition Company (ERES) raised $300mm for an acquisition in energy in North America. ERES is led by Terrence Pegula, who owns the Buffalo Sabres and Buffalo Bills sports franchises and is a CEO with over 40 years of experience forming multiple oil & gas companies. ERES also has a $50mm forward purchase agreement with East Asset Management, LLC, an affiliate of its sponsor. Wells Fargo is sole book-runner.
  • Property Solutions Acquisition Corp. (PSAC) raised $200mm for an acquisition in real estate services or proptech. PSAC is led by Jordan Vogel, who has been investing in and managing residential real estate in New York City since 2001. Vogel is co-founder and managing member of Benchmark Real Estate Group, LLC, where he oversees acquisitions for the firm. EarlyBirdCapital is sole book-runner.
S-1's
  • Dragoneer Growth Opportunities Corp. (DGNR) filed to raise $600mm for an acquisition in software, internet, media, consumer/retail, healthcare IT or financial services/fintech. DGNR is led by Marc Stad, the founder and CEO of Dragoneer Investment Group, a growth-oriented investment firm with over $10bn in AUM. The SPAC has two forward purchase agreements for a total of $175mm. Citigroup, Goldman Sachs and J.P. Morgan are joint book-runners.
  • Gores Holdings V, Inc. (GRSV) filed to raise $400mm without a specific sector focus. GRSV is chaired by serial SPAC sponsor Alex Gores and brings back most of the team from his previous SPACs. Gores has two other active SPACs in the market - Gores IV (GHIV), which raised $425mm in January 2020, and Gores Metropoulos (GMHI), which raised $400mm in February 2019. See here for a detailed history of the first three Gores SPACs. Deutsche Bank and Morgan Stanley are joint book-runners.
  • Fortress Value Acquisition Corp. II (FAII) filed to raise $300mm without a specific sector focus. FAII is led by Joshua Pack, who is managing partner of the Credit Funds business at Fortress, and has 20 years of credit investment and workout experience. Pack and much of FAII’s management team also led Fortress Value Acquisition Corp. (FVAC), which raised $345mm in April 2020 and announced a definitive agreement to acquire MP Materials in July 2020. Pack and CEO Andrew McKnight also served as directors of Mosaic Acquisition Corp. (MOSC), which raised $345mm in Oct 2017 and acquired Vivint Smart Home (NYSE: VVNT) in Jan 2020. Deutsche Bank, Morgan Stanley, and BofA are joint book-runners.
  • ARYA Sciences Acquisition Corp III (ARYA) filed to raise $125mm for an acquisition in life sciences and medical technologies in North America and Europe. ARYA is led by Joseph Edelman, who along with Adam Stone, Michael Altman, and Todd Wider, led ARYA Sciences Acquisition Corp. (ARYA), which raised $144mm in October 2018 and acquired Immatics Biotechnologies in July 2020, and ARYA Sciences Acquisition Corp. II (ARYB), which raised $130mm in June 2020 and is currently seeking a business combination. ARYA III is the third SPAC this year to file with no warrant coverage. Jefferies and Goldman Sachs are joint book-runners.
  • Kismet Acquisition One Corp (KSMT) filed to raise $250mm without a specific sector focus. KSMT is led by Ivan Tavrin, the founder of Kismet Capital Group, a private investment group he has managed since its inception in 2017. Credit Suisse and BofA are joint book-runners.
  • NavSight Holdings Inc. (NSH) filed to raise $200mm for an acquisition in national security, intelligence and defense. NSH is led by Robert A. Coleman and Jack Pearlstein. Coleman was the founder and CEO of Integrated Data Systems Corporation, a provider of software engineering, computer security and enterprise architecture solutions to the intelligence community and the Department of Defense, which was acquired by ManTech (NASDAQ: MANT) in February 2003. Pearlstein has over 25 years of operating experience in the technology sector, including over 10 years with companies providing expertise and technology to the U.S. defense and intelligence communities. Credit Suisse is sole book-runner.
  • FS Development Corp. (FSDC) filed to raise $100mm for an acquisition in biotechnology. FDSC is led by Jim Tananbaum, the founder and CEO of Foresite Capital, a healthcare-focused venture capital firm with over $3bn in AUM. FDSC is the fourth SPAC this year to file with no warrant coverage, and the third in the healthcare space run by Jefferies. Jefferies is sole book-runner.
Deal Announcements, LOIs and Rumors
  • Tenzing Acquisition Corp. (TZAC) announced a deal to acquire Reviva Pharmaceuticals, a California-based clinical stage pharmaceutical company developing therapies that address unmet medical needs in central nervous system, cardiovascular, metabolic, and inflammatory diseases. The deal reflects a total post-money equity value of the combined company of approximately $119mm assuming no redemptions. Closing is expected in Q4 2020.
  • Andina Acquisition Corp. III (ANDA) signed a letter of intent to acquire EMMAC Life Sciences Limited, Europe’s largest independent cannabis company. No details were provided on transaction terms but the company recently raised capital at a $190mm valuation in October 2019. Andina also held a webcast on Friday 7/24/2020 to discuss the transaction.
  • Bloomberg reported that dMY Technology Group (DMYT) is in talks with gaming technology operator Rush Street Interactive.


Broken Deal

  • Legacy Acquisition Corp. (LGC) terminated the company’s agreement to acquire Blue Valor Limited. LGC still has until 11/20/2020 to close a transaction.


Charter Extensions

  • HCAC filed for an extension through 12/31/2020 with no sponsor contribution. The company also announced in its extension proxy that it has signed a letter of intent to acquire a target in the electric vehicle and advanced mobility sector.
  • GRAF extended its charter through 10/31/2020 with no sponsor contribution.
  • BRPA extended through 12/23/2020 with a $0.02 per share monthly contribution.

Upcoming Meetings and Deadlines
  • 7/27/2020 TZAC Liquidation deadline (optional contribution extension)
  • 7/29/2020 ANDA Charter extension meeting (liquidation deadline 7/31/2020)
  • 8/3/2020 SPAQ Charter extension meeting (liquidation deadline 8/14/2020)
  • 8/5/2020 ORSN Liquidation deadline (optional contribution extension)
  • 8/6/2020 TOTA Liquidation deadline (optional contribution extension)


Links

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