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March 21, 2022
Welcome to the SPAC Research weekly newsletter. This week's newsletter features a guest post by LightJump Acquisition Corp (LJAQ) President Eric Ver Ploeg.
Non-Redemption Tontines – A step forward in SPAC Price Discovery
A true price discovery mechanism would be a key improvement in the SPAC structure. To date, there have some approaches that provide some measure of price validation but lack true price discovery. For example, the classic approach of a $10/share common equity PIPE from an arms-length credible investor was a useful price validation mechanism. But these are uncommon now, with most PIPEs coming from affiliates who have different effective entry prices or as structured financings that do little to validate price.

If the SPAC shares trade above cash in trust per share in the period between announcement and the redemption deadline, that is true price discovery in action. But the company suffers more dilution than necessary in these cases, so they have an incentive to be optimistic in their valuation aspiration. Consequently, only about 7% of all announced SPACs are currently trading above cash in trust. The only price discovery we have for the other 93% is that the market thinks the valuation should be less than cash in trust. This leads to high redemption rates and chaotic post-close share price trajectories.

Non-Redemption Tontines
Bill Ackman’s ill-fated Pershing Square Tontine SPAC attempted to incent IPO investors to hold their shares through redemption without the shareholder rotation necessary in a price discovery mechanism. But three recently announced non-redemption tontines reflect a huge step forward in terms of price discovery mechanisms.

These three introduce a share bonus pool to be ratably shared only among those shareholders who elect not to redeem. The higher the redemption rate, the larger the ratable bonus each non-redeeming shareholder receives, and the lower their effective entry valuation becomes. The first of these was the FirstMark Horizon (FMAC) & Starry announcement in October, followed by the Cohn Robbins (CRHC) & Allwyn deal in January and the DPCM Capital (XPOA) acquisition of D-Wave in February. They each cap the range of redemption values over which the mechanism can operate -- generally constrained to meeting a minimum cash level.

The chart below shows the effective pro forma enterprise value as a function of redemption rate for the CRHC & Allwyn transaction. This illustrates a true price discovery supply-demand mechanism. Effective share price is a function of redemption rate, allowing supply and demand to match -- but only if the market clearing price lies within this fairly narrow price range. As the chart illustrates, the relatively low redemption rate cap leads to a difference between the largest and smallest possible pro forma enterprise value of only 3.4%. This doesn’t seem like a very meaningful range over which to allow price discovery to operate.
CRHC & Allwyn Effective pro forma enterprise value for shareholders who hold through the Close, as a function of Redemption Rate.
XPOA & D-Wave
The XPOA & D-Wave non-redemption tontine operates using the same mechanism as the CRHC & Allwyn transaction, but with a much larger range of effective valuations over which it operates. The plot below illustrates the 20.0% effective valuation range -- over five times the 3.4% range of the CRHC & Allwyn transaction. The FMAC & Starry transaction has a valuation range of 9.0%; it also has several other transaction features making it less of a direct comparable. Market participants will have different opinions about what prices are attractive entry/exit points, but a broader range in effective valuations should increase the chance of the true market clearing price falling within the range. Of course, a broad range at an unreasonably high valuation isn’t likely to yield a match, and there are additional terms beyond price at play, so it's a bit simplistic to consider valuation range in isolation.
XPOA & D-Wave effective pro forma enterprise value for shareholders who hold through the Close, as a function of Redemption Rate.
Is it working?
The FMAC & Starry redemption deadline was March 14, so there may be redemption results available by the time you read this, but there lots of moving parts in that transaction, including shares subject to a non-redemption agreement. We’ll have to wait for the redemption deadlines for the other two deals to pass -- those are not yet scheduled -- to have a better read on how this approach has worked in practice.

But we can get an initial indication on market receptivity. We do that by looking at normalized trading volumes (normalized by the number of SPAC public shares outstanding) since announcement. The plot below shows the cumulative normalized trading volumes for XPOA (& D-Wave), FMAC (& Starry), CRHC (& Allwyn), and the median for all the other SPACs that announced transactions in January or February. As we would expect from the analysis above, all three of the announcements with non-redemption tontines have seen relatively high trading volumes. Consistent with the analysis above, the trading volume increases with a broader effective price range over which price discovery can operate.
Cumulative Trading Volume since announcement date, normalized by number of SPAC shares outstanding. XPOA & D-Wave (20.0% effective pro forma enterprise valuation range), FMAC & Starry (9.0% range), CRHC & Allwyn (3.4% range), and Median (0% range) – broader effective range shows greatest shareholder rotation.
There are likely additional improvements that could be made to aid in more direct price discovery, but these initial non-redemption bonus tontine structures represent an important innovation.

All data from SPAC Research as of 3/14/22.
Eric Ver Ploeg has over 20 years of Silicon Valley high-tech startup and investment experience. From 2017 to 2020, Dr. Ver Ploeg was a managing director of Deutsche Telekom Capital Partners venture group, a growth-stage focused venture capital investor, where he was involved with the firm’s investments in cloud infrastructure company Fastly (NYSE: FSLY), enterprise SaaS company Dynamic Signal, and cyber security company Anomali. From 2015 to early 2017, Dr. Ver Ploeg was acting as an independent venture investor. From 2001 to 2008, Dr. Ver Ploeg was a managing director of VantagePoint Venture Partners, where he was involved in the funding of many private companies, including Spatial Wireless and OZ Communications. Dr. Ver Ploeg co-managed the quantitative hedge fund Recursive Capital and has made personal investments into private companies in the crypto, fintech, marketplace, and enterprise SaaS sectors. Before beginning his investment career, Dr. Ver Ploeg was the co-founder of two venture-backed startup companies that raised multiple rounds of venture capital.
News From the Past Week

Deal News

  • Metals Acquisition Corp (MTAL) announced a deal to acquire CSA Copper Mine, an underground copper mine located in the Tier 1 mining jurisdiction of western New South Wales. The deal is expected to provide a total consideration of $1.1bn (consisting of $1.05bn of cash and $50mm of common equity) plus a 1.5% copper Net Smelter Royalty (NSR). The transaction is expected to close in 2022.

  • PONO Capital Corp (PONO) announced a deal to acquire Benuvia, Inc., a drug developer and manufacturer of active pharmaceutical ingredients focused on cannabinoids. The deal reflects an enterprise value of $440mm and is expected to close in Q3 2022.

  • Brookline Capital Acquisition Corp. (BCAC) announced a deal to acquire Apexigen, Inc., a clinical-stage biopharmaceutical company focused on discovering and developing a new generation of antibody therapeutics for oncology. The deal reflects an enterprise value of $278mm and includes a $15mm PIPE. The transaction is expected to close in July 2022.

  • Vickers Vantage Corp. I (VCKA) announced a deal to acquire Scilex, a commercial biopharmaceutical company focused on developing and commercializing non-opioid therapies for patients with acute and chronic pain. The combined company is expected to have funds of up to $140mm, assuming no redemptions. The transaction is expected to close in Q3 2022.

  • VPC Impact Acquisition Holdings II (VPCB) and Kredivo agreed to terminate their business combination agreement, with VPCB receiving $4mm in reimbursement and leading a $145mm private structured investment in Kredivo.

  • First Reserve Sustainable Growth Corp. (FRSG) and EO Charging agreed to terminate their business combination agreement, citing market conditions.

  • Bridgetown 2 Holdings Ltd (BTNB) closed its acquisition of PropertyGuru on Thursday 3/17/2021 with 40.7% of public shares remaining. Ordinary shares are now trading on the NYSE as “PGRU.”

  • Motive Capital Corp (MOTV) shareholders approved the company’s acquisition of Forge Global at a meeting Tuesday 3/15/2022. Redemption statistics were not provided. The transaction is expected to close the week of 3/21/2022.

New S-1's
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Israel Acquisitions ISRL 200 BTIG 101.0% 1/2+R
VIKASA SPAC Series I VSSA 200 CF 102.0% 1/2
Aura FAT Projects AFAR 100 EF Hutton 102.0% W
ClimateRock CLRC 75 Maxim 101.5% W

IPOs
Name Ticker Raised ($mm) Sector Cash in Trust Coverage
Goldenstone Acquisition GDST 50 General 101.5% W+R



Registrations Withdrawn
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Atlas Crest Investment III ACCC 600 Cantor 100.0% 1/4
Corner Growth Acquisition 3 RADD 450 Cantor 100.0% 1/4
Atlas Crest Investment IV ACIV 400 Cantor 100.0% 1/4
Aperture Acquisition APCP 275 GS 100.0% 1/4
Silverman Acquisition I SACQ 250 JPM 100.0% 1/3
Denham Sustainable Performance DSPQ 200 UBS 100.0% 1/3
CCIF Acquisition CCIF 150 I-Bankers 101.5% 1/2
Firemark Global Capital, Inc. FMG 150 A.G.P 100.0% 1/2
TechStackery, Inc. TSY 150 A.G.P 100.0% 1/2
Venice Brands Acquisition I VBAQ 150 Jefferies 100.0% 1/2
Vital Human Capital, Inc. VIT 150 A.G.P 100.0% 1/2
New Beginnings III NBAD 100 Ladenburg Thalmann 100.0% 1/2

Charter Extensions

  • ATA extended its charter through 6/17/2022 with a single $0.10 contribution to trust.
  • VHAQ extended its charter through 6/28/2022 with a $720k contribution to trust.

Upcoming Meetings and Deadlines

  • 3/21/2022 AMAO Charter extension meeting (liquidation date 3/22/2021)
  • 3/22/2022 TWNT Terran Orbital Corporation approval meeting
  • 3/23/2022 ACKIT Liquidation deadline
  • 3/25/2022 BRLI Liquidation deadline (pending results from 3/18/2022 extension meeting)
  • 3/29/2022 THCA Extension approval meeting (liquidation date 3/31/2022)
  • 3/29/2022 HTPA Packable approval meeting (merger outside date 3/31/2022)
  • 3/29/2022 VTAQ Liquidation deadline
  • 3/30/2022 GMBT Swvl approval meeting
  • 3/31/2022 HLXA MoonLake Immunotherapeutics AG approval meeting
Links

  • CNBC reported on the fall in stock price of Electric Last Mile Solutions Inc. (NASDAQ: ELMS; formerly Forum Merger III) after the company confirmed an ongoing SEC probe into its operations.
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.
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