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June 5, 2023

Smaller SPAC Deals

SPAC deals have been getting ever-smaller since the chaotic bull market of 2021.
  • The reduction in scale feels like it has accelerated of late, with Black Spade Acquisition's deal for Vietnamese electric car-maker VinFast being the only billion-dollar deal announced last month.

We wanted to visualize this phenomenon so we put together a look at the median enterprise value to IPO size by month. You can see it below:
It's a dramatic drop, with many recent deals now coming in at or below the SPAC's original capital raise.
  • For years, sponsors targeted companies that were at least 3-5 times the size of their trust account.

After months of weak sentiment, the pool of companies announcing SPAC deals has come to terms with more realistic valuations.
  • Despite that, post-deSPAC performance remains weak. Whether you're looking at deSPACs or regular way IPOs, the environment remains risk-off for primary issuance. (Especially for small-cap companies.)

Sponsors are also aiming smaller due to the loss of trust capital at extension meetings.
  • There are many fewer dollars in trust than there were two years ago. The space has shrunk in size from over $200B in 2021 to less than $50B today.
As the SPAC space shrinks, sponsors will need to find a new paradigm if they want to be successful.
  • SPACs are generally more successful in bull markets. But even if broader indices catch a bid again, the format will need to evolve.

Demand for SPAC IPOs is still high among hedge funds seeking yield. And anecdotally, bankers are scouring their networks for repeat sponsors willing to put up risk capital and try again.
  • But sponsors have struggled to even recoup their original risk capital in recent deals. And in many cases sponsors have lost their entire investment and essentially financed the profits earned by yield-seekers.

Despite sponsors' struggles, financial journalists are still writing pieces mistakenly accusing sponsors of cashing out while the market was hot.
  • In reality, the vast majority of sponsor shares were under extensive lockup -- meaning most sponsors were logistically unable to sell during the euphoria period of the COVID bull market.

The gridlock we're seeing in capital markets won't last forever. But it feels like things will need to change for SPACs to find their stride again in the next bull market.

As a result, we'll be looking for changes that go beyond tenor adjustments and trust overfunding in the next wave of SPAC IPOs that comes to market.
News From the Past Week

Deal News

  • Pegasus Digital Mobility Acquisition Corp. (PGSS) announced a deal to acquire The SCHMID Group, a global solutions provider for the high-tech electronic, photovoltaics, glass, and energy systems industries. The deal reflects an enterprise value of $640mm and is expected to close in Q4 2023.

  • Seaport Global Acquisition II Corp. (SGII) announced a deal to acquire American Battery Materials, Inc. (OTC: BLTH), a minerals exploration and development company focused on environmentally friendly direct lithium extraction. The deal reflects an enterprise value of $225mm and is expected to close in Q4 2023.

  • Clover Leaf Capital Corp. (CLOE) announced a deal to acquire Kustom Entertainment, a wholly-owned subsidiary of Digital Ally (NASDAQ: DGLY) focused on live events, concert production and ticketing. The deal implies an equity value of $222mm. No closing timeline was given.

  • Redwoods Acquisition Corp. (RWOD) announced a deal to acquire ANEW Medical, an early-stage biotechnology company focused on developing disruptive new therapies to treat neurodegenerative diseases. The deal reflects an enterprise value of $94mm and is expected to close in Q4 2023.


Deal Closings & Approvals

  • Jupiter Wellness Acquisition Corp. (JWAC) closed its acquisition of Chijet Motor Company Thursday 6/1/2023. Redemption statistics were not provided. Ordinary shares are now trading on the NASDAQ as “CJET.”
IPOs
There were no SPAC IPOs last week.

New S-1's
There were no new S-1's last week.

Liquidations
Name Ticker Size ($mm) Announced Liq. Date Trust Per Share
Sound Point Acquisition I SPCM 259 6/2/2023 6/5/2023 $10.63
Bullpen Parlay BPAC 230 6/1/2023 6/7/2023 $10.50
Jaws Hurricane HCNE 316 6/1/2023 6/16/2023 TBD

Registrations Withdrawn
There were no registrations withdrawn or abandoned last week.

Charter Extensions

  • CLIN extended its charter through 11/28/2023 with a monthly $195,000 ($0.024 per share) sponsor contribution to trust. Approximately 35% of public shares remain representing $85mm in trust.
  • BRD extended its charter through 12/29/2023 with a monthly $165,000 ($0.022 per share) sponsor contribution to trust. Approximately 31% of public shares remain representing $74mm in trust.
  • OTEC extended its charter through 6/2/2024 with a monthly $30,000 ($0.036 per share) sponsor contribution to trust. Approximately 8% of public shares remain representing $9mm in trust.
  • EFHT extended its charter through 3/13/2024 with an $80,000 ($0.023 per share) sponsor contribution to trust. Approximately 30% of public shares remain representing $36mm in trust.
  • CONX extended its charter through 11/3/2023 with a monthly $0.04 per share sponsor contribution to trust. Approximately 4% of public shares remain representing $27mm in trust.
  • CMCA extended its charter through 3/3/2024 with no sponsor contribution to trust. Approximately 18% of public shares remain representing $45mm in trust.
  • GSRM extended its charter through 3/1/2024 with no sponsor contribution to trust. Approximately 33% of public shares remain representing $74mm in trust.
  • APXI extended its charter through 9/9/2023 with a single $0.10 per share sponsor contribution to trust.
  • FGMC extended its charter through 9/1/2023 with a single $0.10 per share sponsor contribution to trust.

Upcoming Meetings and Deadlines

  • 6/5/2023 MTAL CSA Copper Mine approval meeting (merger outside date 6/14/2023)
  • 6/5/2023 IPVF Charter extension meeting (liquidation deadline 6/9/2023)
  • 6/5/2023 LBBB Charter extension meeting (liquidation deadline 6/11/2023)
  • 6/5/2023 SPCM Liquidation at ~$10.63 per share
  • 6/6/2023 PMGM AEON Biopharma approval meeting (merger outside date 7/21/2023)
  • 6/6/2023 AVAC The Beneficient Company approval meeting (merger outside date 7/8/2023)
  • 6/6/2023 RONI NET Power approval meeting (merger outside date 8/31/2023)
  • 6/6/2023 KVSA Charter extension meeting (liquidation deadline 6/8/2023)
  • 6/6/2023 BOCN Charter extension meeting (liquidation deadline 6/7/2023)
  • 6/7/2023 BIOS Liquidation Deadline
  • 6/7/2023 STET Liquidation Deadline
  • 6/7/2023 BPAC Liquidation (per-share amount TBD)
  • 6/8/2023 TCOA Charter extension meeting (liquidation deadline 6/14/2023)
  • 6/8/2023 MOBV Liquidation deadline (pending optional $0.03 deposit extension)
  • 6/8/2023 ACAH Liquidation Deadline
  • 6/9/2023 IRAA Liquidation Deadline
  • 6/9/2023 HAIA Charter extension meeting (liquidation deadline 6/14/2023)
  • 6/9/2023 XPDB Charter extension meeting (liquidation deadline 6/14/2023)
  • 6/9/2023 PORT Charter extension meeting (liquidation deadline 6/14/2023)
  • 6/9/2023 MTVC Liquidation at ~$10.50 per share
  • 6/9/2023 SCUA Liquidation at ~$10.52 per share

Links

  • Bloomberg reported that Niron Stabinsky, the head of SPACs for Credit Suisse SPACs, is leaving to join Banco Santander.

  • Axios reported on a United States Supreme Court ruling this week in favor of messaging company Slack over investors that bought into the company's direct listing from 2019. The ruling casts doubt on the viability of direct listings by projecting uncertainty around the registration status of shares offered within such listings.
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