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August 16, 2021
Welcome to the SPAC Research weekly newsletter.

Anchor Orders & Market Weakness

Over the past two months, we've seen an interesting trend taking shape in the SPAC IPO market. Major holders made huge allocations to the asset class in Q4 2020 and Q1 2021 and have almost entirely put the brakes on new issuance at previous terms. But IPOs are still getting done.

We noted in early July that sponsors were being asked to tap personal connections for anchor orders if they wanted to fill their book and execute an IPO. At this point, for the majority of sponsors, it looks like there are two good ways to get out the door: overfund your trust account or secure anchor investments for a majority of your IPO book.

There have been 46 SPAC IPOs in the past five weeks. Only seven of those managed to IPO with a 24-month initial tenor, exactly $10 in trust, and no anchor investments. Meanwhile nearly half of the IPOs have disclosed significant anchor investments in their prospectus.

We wanted to take a closer look at those anchor investments. So we plotted a visualization below, with each SPAC's initial cash in trust per share on the x-axis and the "anchor coverage ratio" on the y-axis. (We've defined "anchor coverage ratio" as the percentage of the IPO purchased by anchor orders, assuming full over-allotment and full participation from all disclosed indications of interest.)
If the IPO market is cold, why are so many investors making anchor commitments? The answer is that they're typically receiving founder shares and/or participating in the SPAC's risk capital purchase.

Participation in risk capital itself is rarely disclosed, but we're seeing anchor investor participation in promote shares in an amount that would reduce the investor's capital commitment to the SPAC's IPO by anywhere from 3% to 8%, depending on the sponsor's track record. That participation may have interesting impact down the road. Many promote concessions given to anchor investors are contingent on holding anchor shares through closing of a business combination, which could support lower redemption rates for some SPACs at their eventual shareholder approval meetings.

There are two more big levers sponsors can pull to incentivize IPO investors: warrant coverage and duration. Until recently, IPO warrant coverage had remained fairly stable. But SPAC yields have continued to expand this summer, settling in above the 2% mark.
It may be that with yields widening, anchor investors are also demanding increased warrant coverage to make up for lower perceived common stock value at unit separation. You can see that the rolling average warrant coverage has skyrocketed recently, as 17 IPOs this past week pushed the four Social Capital Suvretta SPACs with zero warrant coverage out of the 40-deal rolling average.
On the deSPAC side, recent deal announcements continue to struggle. Redemption rates have shot upwards after a long period of being extremely low. Below you can see a visualization of redemption rates over time. The eight-month period from October 2020 to May 2021 shows many blue dots along the 0% line at the bottom; more recently we're seeing a scattershot of redemption rates across the y-axis.
It feels like we keep covering the skeptical market environment, but at this point it's impossible to escape the fact that the market is still saturated from Q1's record issuance and working through a hangover of oversupply.

But there is a small silver lining. After a lengthy period of the SPAC asset class expanding in size at a rate of roughly 20% per month, total cash in trust is finally starting to tick downwards. New SPACs are much smaller at IPO and larger SPACs are closing deals and returning capital (or providing liquidity) to shareholders. Generally speaking, less total supply of SPAC securities is supportive of deal conditions at the margins.
It's tough to see what would give SPAC deal announcements the benefit of the doubt again, at least in the short term. Recent earnings and guidance misses like the ones dropped by Katapult and ATI Physical Therapy certainly aren't helping matters. And so deSPACs are facing greater headwinds than at any time in recent memory.

Sponsors looking to deSPAC successfully should assume public shareholders will be skeptical of most business combinations. Despite the challenges of the PIPE market, finding committed capital at the time of deal announcement is more important than ever, and sponsors willing to write a big check alongside their own deals will likely enjoy a big advantage. The ability for companies to deliver on projected results, especially in their first quarter post-deSPAC, will likely grow more important as investors continue to scrutinize deals more carefully.



News From the Past Week

Deal News
  • Environmental Impact Acquisition Corp. (ENVI) announced a deal to acquire GreenLight, a biotechnology company dedicated to making ribonucleic acid (RNA) products affordable and accessible for human health and agriculture. The deal reflects an enterprise value of $1.2bn and includes a $105mm PIPE with investors including S2G Ventures, Cormorant Asset Management and Morningside Venture Investments. The transaction is expected to close in Q4 2021.

  • First Reserve Sustainable Growth Corp. (FRSG) announced a deal to acquire EO Charging, a provider of technology-enabled turnkey solutions for electric vehicle fleets. The deal reflects an enterprise value of $675mm and is expected to close in Q4 2021.

  • MedTech Acquisition Corporation (MTAC) announced a deal to acquire Memic Innovative Surgery Ltd., a medical device company dedicated to transforming surgery with its proprietary surgical robotic technology. The deal reflects an enterprise value of $655mm and includes a $76mm PIPE with investors including Bridger Healthcare, The Kraft Group, and Monashee Investment Management. The transaction is expected to close in Q4 2021.

  • Astrea Acquisition Corp. (ASAX) announced a deal to acquire HotelPlanner, a hotel and event booking technology platform and Reservations.com, an online travel agency. The deal reflects an enterprise value of $567mm and is expected to close in Q4 2021.

  • Merida Merger Corp. I (MCMJ) announced a deal to acquire Leafly Holdings Inc., an online cannabis discovery marketplace and resource for cannabis consumers. The deal reflects an enterprise value of $385mm and is expected to close in Q4 2021.

  • European Sustainable Growth Acquisition Corp. (EUSG) announced a deal to acquire ADS-TEC Energy GmbH, a global battery buffered ultrafast charging technology company. The deal reflects an enterprise value of $356mm and includes a $156mm PIPE with investors including APG, Invesco and Polar Structure. The transaction is expected to close in Q4 2021.

  • Model Performance Acquisition Corp. (MPAC) announced a deal to acquire MultiMetaVerse, a developer and publisher of animations and mobile games. The deal consists of $300mm in consideration paid in common stock and a $10mm PIPE with BILIBILI Inc. No closing timeline was given.

  • BCTG Acquisition Corp. (formerly BCTG) closed its acquisition of Tango Therapeutics on Tuesday 8/10/2021 with 6.6% of public shareholders exercising redemption rights. Ordinary shares are now trading on the NASDAQ as “TNGX.”

  • Reinvent Technology Partners (formerly RTP) closed its acquisition of Joby Aviation on Tuesday 8/10/2021 with 62% of public shareholders exercising redemption rights. Ordinary shares and warrants are now trading on the NYSE as “JOBY” and “JOBY/W.”

  • Peridot Acquisition Corp. (formerly PDAC) closed its acquisition of Li-Cycle on Tuesday 8/10/2021 with 11.5% of public shareholders exercising redemption rights. Ordinary shares and warrants are now trading on the NYSE as “LICY” and “LICY/W.”

  • Consonance-HFW Acquisition Corp. (formerly CHFW) closed its acquisition of Surrozen on Wednesday 8/11/2021. Redemption statistics were not provided. Ordinary shares and warrants are now trading on the NASDAQ as “SRZN” and “SRZNW.”

  • SC Health Corporation (formerly SCPE) closed its acquisition of Rockley Photonics on Wednesday 8/11/2021. Redemption statistics were not provided. Ordinary shares and warrants are now trading on the NYSE as “RKLY” and “RKLY/W.”

  • Stable Road Acquisition Corp. (formerly SRAC) closed its acquisition of Momentus on Thursday 8/12/2021 with 20% of public shareholders exercising redemption rights. Ordinary shares and warrants are now trading on the NASDAQ as “MNTS” and “MNTSW.”

  • Software Acquisition Group Inc. II (SAII) closed its acquisition of Otonomo Technologies with 34.7% of public shareholders exercising redemption rights. Ordinary shares and warrants will trade on the NASDAQ as “OTMO” and “OTMOW” beginning Monday 8/16/2021.

  • GreenVision Acquisition Corp. (formerly GRNV) closed its acquisition of Helbiz on Friday 8/13/2021 with 28.1% of public shareholders exercising redemption rights. Ordinary shares and warrants are now trading on the NASDAQ as “HLBZ” and “HLBZW.”

  • New Beginnings Acquisition Corp. (NBA) shareholders approved the company’s acquisition of Airspan Networks. Redemption statistics were not provided. Ordinary shares are expected to trade on the NYSE under the ticker symbol “MIMO.”

  • NavSight Holdings Inc. (NSH) shareholders approved the company’s acquisition of Spire Global at a meeting Friday 8/13/2021. Redemption statistics were not provided. The transaction is expected to close on Monday 8/16/2021.

  • Bloomberg reported that Simon Property Group Acquisition Holdings, Inc. (SPGS) is in talks with serial SPAC sponsor Mark Ein's security services provider Kastle Systems.

  • Bloomberg reported that Ross Acquisition Corp II (ROSS) is in talks with GaN Systems, which specializes in gallium-nitride technology for products such as semiconductors and transistors.

  • Bloomberg reported that InterPrivate III Financial Partners Inc. (IPVF) is in talks with green fintech startup Aspiration.

  • Reuters reported that NEO-listed BGP Acquisition is in talks with California-based weed supplier HERBL.

  • Bloomberg reported that FoxWayne Enterprises Acquisition Corp. (FOXW) is in talks with Aerami Therapeutics.

New S-1's
IPOs
  • Conyers Park III Acquisition Corp. (CPAA) raised $350mm for an acquisition in the consumer sector. Units contain one-third warrant coverage.
  • Decarbonization Plus Acquisition Corporation IV (DCRD) raised $275mm for an acquisition in global decarbonization, including the energy and agriculture, industrial, transportation and commercial and residential sectors. Units contain one-half warrant coverage.
  • AfterNext HealthTech Acquisition Corp. (AFTR) raised $250mm for an acquisition in healthtech. Units contain one-third warrant coverage.
  • Kensington Capital Acquisition Corp. V (KCGI) raised $240mm for an acquisition in the North America and European industrials sector. Units contain three-fourths warrant coverage.
  • Avista Public Acquisition Corp. II (AHPA) raised $230mm for an acquisition in healthcare. Units contain one-third warrant coverage.
  • 10X Capital Venture Acquisition Corp. II (VCXA) raised $200mm for an acquisition of technology and tech-enabled businesses domestically and abroad in the consumer internet, ecommerce, software, healthcare and financial services. Units contain one-third warrant coverage.
  • World Quantum Growth Acquisition Corp. (WQGA) raised $200mm for an acquisition in financial services and fintech in the US and EMEA as well as technology firms supporting these sectors. Units contain one-half warrant coverage.
  • TPB Acquisition Corporation I (TPBA) raised $175mm for an acquisition of sustainability-focused companies across the food, agriculture, biomanufacturing, and life sciences sectors. Units contain one-third warrant coverage.
  • Armada Acquisition Corp. I (AACI) raised $150mm for an acquisition in digital, on-line or mobile payment solutions, processing and gateway services, point-of-sale technology, consumer engagement platforms, and ecommerce and loyalty solutions. Units contain one-half warrant coverage.
  • AxonPrime Infrastructure Acquisition Corporation (AMPI) raised $150mm for an acquisition in infrastructure. Units contain one-third warrant coverage.
  • CENAQ Energy Corp. (CENQ) raised $150mm for an acquisition in energy in North America. Units contain three-fourths warrant coverage.
  • Jupiter Acquisition Corporation (JAQC) raised $150mm for an acquisition in the consumer and TMT sectors. Units contain one-half warrant coverage.
  • Chardan NexTech Acquisition 2 Corp. (CNTQ) raised $110mm in an upsized IPO for an acquisition in healthtech and fintech. Units contain three-fourths warrant coverage.
  • Oxbridge Acquisition Corp. (OXAC) raised $100mm for an acquisition of disruptive technology companies in the insurance technology sectors and companies that focus on blockchain and artificial intelligence. Units contain whole warrant coverage.
  • PONO Capital Corp (PONO) raised $100mm for an acquisition of enterprise security and operations applications, cloud-based content and digital streaming services, drone technology and service, AI companies, consumer healthcare and wellness, biomedical technology, entertainment/gaming companies, distance learning, and e-sports companies. Units contain three-fourths warrant coverage.
  • ABRI SPAC I, INC. (ASPA) raised $50mm for an acquisition of power transformation companies that provide disruptive technological innovation in a range of traditionally managed industries with particular emphasis on the financial services industry. Units contain whole warrant coverage.
  • PHP Ventures Acquisition Corp. (PPHP) raised $50mm for an acquisition of consumer-facing companies with a significant Africa presence or compelling Africa potential. Units contain one-half warrant coverage and one right.
Charter Extensions
  • VMAC extended its charter through 11/11/2021 with a single $0.10 contribution to trust funded by the SPAC’s acquisition target Anghami.
  • GNRS extended its charter through 9/13/2021 with a single $0.033 contribution to trust.
  • AGBA extended its charter through 11/16/2021 with a single $0.15 contribution to trust.

Upcoming Meetings and Deadlines
  • 8/16/2021 RMGB ReNew Power approval meeting (outside date 8/31/2021)
  • 8/17/2021 TWND QOMPLX approval meeting (outside date 8/31/2021)
  • 8/18/2021 AJAX Cazoo approval meeting
  • 8/18/2021 NGAC Xos Trucks approval meeting (outside date 8/21/2021)
  • 8/18/2021 ZGYH Liquidation deadline
  • 8/18/2021 KSMT Nexters Global approval meeting (outside date 6/30/2021)
  • 8/18/2021 LIVK AgileThought approval meeting
  • 8/20/2021 SV AeroFarms approval meeting
  • 8/20/2021 VACQ Rocket Lab USA approval meeting
  • 8/23/2021 FWAA SmartRent approval meeting
  • 8/24/2021 LWAC eFFECTOR Therapeutics approval meeting
  • 8/24/2021 AHAC Humacyte approval meeting (outside date 8/31/2021)
  • 8/24/2021 ESSC Liquidation deadline
  • 8/25/2021 GWAC Cipher Mining Inc approval meeting (outside date 9/6/2021)
  • 8/25/2021 SNPR Volta approval meeting (outside date 9/6/2021)
  • 8/25/2021 MUDS The Topps Company approval meeting
  • 8/26/2021 DFNS IronNet Cybersecurity approval meeting
  • 8/27/2021 TWCT Cellebrite approval meeting (liquidation date 9/15/2021)
  • 8/27/2021 BLUW Clarus Therapeutics approval meeting
  • 8/28/2021 GRCY Liquidation deadline
Disclosures: Site administrators may maintain positions in various SPAC securities and may trade in or out of those securities at any time without notice. Information from spacresearch.com is provided for informational purposes only and should not be relied upon as the basis for any investment decision. Nothing on spacresearch.com is a recommendation or solicitation to buy or sell any investment.