SPAC Market Review – February 2022

by | Mar 2, 2022

February continued the already negative sentiment in the equity market. A clearly oversaturated SPAC market is continuing to get crushed. Times are extremely tough right now for SPACs that are still searching for targets, as evidenced by the fact that more SPACs are pulling the plug on offerings. With numerous headwinds– including a PIPE market in hibernation, sky high redemptions, a broader equity sell-off, and poor deSPAC performance—investor appetite is waning.

None of the above sets the stage for a healthy SPAC activity. In February, once again, deal activity remained low. And with just 21 deals announced in 2022 so far, there aren’t nearly enough deals coming to clear out the backlog.

All of this makes it imperative for investors do their homework and dig deep into the fundamental analysis. And if February taught investors anything, it’s that good fundamental stories can still prevail.

IPO slowdown

With over 600 SPACs searching for deals, the big picture is largely unchanged from last month: not enough M&A activity is getting done. Accordingly, the number of new SPAC IPOS continues to decline. February priced 18 deals, down from 23 SPAC IPOs in January, markedly below the ~50 month we were seeing towards the end of 2021.

Source: Boardroom Alpha

Merger announcements have similarly slowed, with only 9 merger announcements this month, down from 10 in January.

In the 255 pre-close SPACs with DAs that look ready to reach the finish line, there are a few noteworthy names:

  • Trump plays continue to perform well. CF Acquisition Corp. VI (CFVI) moved higher on news that the SPAC’s slated merger partner Rumble made a play to lure controversial podcaster Joe Rogan to its video service. CFVI is one of a handful of pre-merger SPACs trading above NAV (~$12).
  • Anticipation of Polestar, the latest big electric vehicle (EV) IPO. Gores Guggenheim (GGPI), which is merging with electric vehicle (EV) maker Polestar, remains a closely-watched upcoming IPO. The transaction is scheduled for 1H 2022.
  • Who needs a PIPE, anyway? Magnum Opus Acquistion (OPA) drew the spotlight after announcing crypto exchange Binance (BNB) would take the place of PIPE investors, committing $200 million for the SPAC to move toward completion of its merger with media publisher Forbes.

February SPAC merger announcements

Source: Boardroom Alpha

Multi-SPAC deals on the rise. Recent market volatility and the scarcity value of good merger targets is setting the stage for multi-SPAC deals. Declining warrant trends underscore investor concerns over whether mergers will come to fruition. This month saw an interesting 3-way SPAC deal. Two SPACs backed by buyout firm Warburg, Pincus (Warburg Pincus Capital Corp I-A, Warburg Pincus Capital Corp I-B –WCPA, WPCB) and Barry Sternlicht’s SPAC Jaws Estates Capital (JAWS) are in talks to merge with Allied Universal in a $20 billion deal. The SPACs are reported to be planning a $750 million PIPE.

Deal cancellations on the rise

As the market gets increasingly competitive, more and more announced deals failed to make it to fruition. So far, 8 SPACs have called off mergers in 2022:

  • PACX & Acorns
  • OCA & Kin
  • LGV & Heartflow
  • MBAC & Syniverse
  • ACAH & Essentium
  • ASAX & HotelPlanner
  • ARYD & Amicus
  • FTAA & Pico

Several SPACs pull the plug

Not only did issuance slow down further, but an even greater number of SPACs that had registration statements on file with the SEC decided to pull their plans for IPO. On the withdrawal list: Fifth Wall Acquisition II, Makara Strategic Acquisition, VIDA Flash Acquisitions.

And not surprisingly, all SPACs without announced deals are languishing.

Redemptions on the rise (again)

SPAC shareholders are increasingly asking for their money back instead of funding mergers. As we’ve seen in recent weeks, the high rate of redemptions is a recurring theme which is preventing deals from getting done. Redemptions have steadily increased over the past three consecutive months. Redemptions hit a whopping 89% in February, up from 82% in January and just 7% a year-ago. Notably, Supernova Partners Acquisition Company (SNII), which is expected to merge with Rigetti Computing (RGTI) hit 67% redemptions.

Source: Boardroom Alpha

However, redemption numbers on the surface aren’t always want they seem. Case in point: Merida Merger Corp’s deal with Leafly would appear to only have suffered 68% in redemptions, but below the surface there were Non-Redemption Forward Purchase agreements in place to entice shareholders to keep their cash in the deal… at least for the time being.

February deSPACs: Despite the poor macro, we saw a few highflyers

It’s a tough macro environment for any public company, let alone, high growth, (mostly) non profitable deSPACs, which continue to get hit. That said, even in a painful world for deSPACs, February saw some impressive outliers. Of all the February deSPACs, who would have thought that the top performer would be luxury subscription travel company Inspirato (INSPO), which demerged from Thayer Ventures Acquisition Corp. (TVAC). Shares are up ~380% since the IPO.

Source: Boardroom Alpha

And there have been a handful of other deSPAC “anomalies”– new debuts that have strongly outperformed this month. Also of note: Arab music streaming provider Anghami (ANGH), which deSPACed from Vista Media Acquisition Corp. (VMAC).

Black Rifle Coffee Company (BRC) is another notable deSPAC which has performed well since its IPO. BRCC’s parent company Authentic Brand merged with the SilverBox Engaged Merger Corp I in an IPO which the company claims will help it hire 10,000 US military veterans. Shares of the veteran-owned coffee company are up over 60% since their debut in mid-February.

Even tech had its deSPAC moment in the spotlight this month. Lidar technology maker Cepton (CPTN) (read our report & watch the podcast) impressed on its public debut, which took place only days after fellow Lidar deSPAC Quanergy (QNGY) tanked. CPTN is up ~20%, QNGY is down ~64% since its IPO. Also impressive has been intelligent market software player System1 (SST), which deSPACed from Trebia Acquisition Corp. (TREB) and is up ~30% out of the gate.

Checking in on Top Sponsors

Gores ready to debut Polestar

While Gores Metropolous II (GMII) got hit with over 90% redemptions on their Sonder Holdings deal. SOND stock has been under pressure since its de-SPAC in January and is currently trading at ~$6. 3D spacial data company Matterport (MTTR), another Gores deSPAC, hasn’t fared well since de-SPAC, down 60% year-to-date.

But the latest Gores SPAC on investors’ radar these days is Gores Guggenheim (GGPI), which is expected to complete a deal with EV manufacturer Polestar sometimes in the first half of the year. Despite the macro-related selloff since early this year, GGPI is a rare pre-close SPAC that’s been trading at a premium to NAV (~$11 currently). We’d expect to see very low redemptions on this name, given Polestar’s discounted implied valuation relative to competitors like Lucid Group (LCID). That said, EV deSPAC LCID is seeing its stock come back to earth after lowering its 2022 production guidance. Shares are down to ~20 after hitting a 52-week high of almost $58.


Exclusive: Polestar CEO Thomas Ingenlath Joins the Podcast

** Read our report on Polestar


Digital World Acquisition Corp. and the Trump effect

No SPAC conversation is complete without Trump social media SPAC Digital World Acquisition Corp. (DWAC), whose stock is up 80% year-to-date after former President Donald Trump’s new social media app Truth Social launched.

State of the SPAC Market

There are still over 600 SPACs looking for a merger target, and they are still largely trading at a discount to NAV at ~$9 for the average common pre-deal SPAC.

Which SPAC could be the next to announce a deal? We recently released a Potential Deal Screener that takes into account several factors including a SPAC’s age, time to deadline and OpEx trends to help predict who might be the next deal. One SPAC on our tracker, TG Pace Beneficial Finance Corp. (TGPY), which has an ESG focus, scores 9.2 on the overall signal. Also of note: Altitude Acquisition Corp. (ALTU), which scores a 9.

Who’s Next? Potential SPAC Deals

The SPAC market is a wreck, but if February taught investors anything, it’s that good fundamental stories can still prevail.
Source: Boardroom Alpha

SPAC Calendar for March

Merger votes for next month include a few high-profile names. GIven how popular the electric vehicle (EV) and related tech space, here’s one to watch: Spartan Acquisition Corp. III (SPAQ), which plans to merge with EV charging infrastructure company Allego.

Source: Boardroom Alpha

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Disclaimer 

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Boardroom Alpha cannot guarantee its accuracy and completeness, and that of the opinions based thereon. 

This report contains opinions and is provided for informational purposes only – it does not constitute investment, legal or tax advice. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional before you make any investment.  

None of the information contained in this report constitutes, or is intended to constitute a recommendation by Boardroom Alpha of any particular security or trading strategy or a determination by BA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  

No representation or warranty, expressed or implied, is made on behalf of Boardroom Alpha as to the accuracy or completeness of the information contained herein. Boardroom Alpha does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed. 

<a href="https://www.boardroomalpha.com/author/joanna/" target="_self">Joanna Makris</a>

Joanna Makris

Joanna has been analyzing and investing in emerging technologies for over two decades, having led the Technology, Media, and Telecom research at several global investment banks, including Mizuho Securities and Canaccord Genuity. Navigating stock market volatility since it all began in 2000. Banjo player, artist, and frittata-maker.

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Disclaimer

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Boardroom Alpha cannot guarantee its accuracy and completeness, and that of the opinions based thereon. 

This report contains opinions and is provided for informational purposes only – it does not constitute investment, legal or tax advice. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional before you make any investment.  

None of the information contained in this report constitutes, or is intended to constitute a recommendation by Boardroom Alpha of any particular security or trading strategy or a determination by BA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  

No representation or warranty, expressed or implied, is made on behalf of Boardroom Alpha as to the accuracy or completeness of the information contained herein. Boardroom Alpha does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed.