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June 8, 2020
Welcome to the SPAC Research weekly newsletter.

Premiums, Yield and Retail
It's been a wild ride for SPACs this year. Back in January, we wondered if SPAC common equity was getting a bit expensive. Then in February, yield-chasing continued across the board and we saw that SPACs were trading at the smallest discount to trust values ever, with most yielding less than 1% and a handful trading at a premium to cash in trust.

In March, a liquidity-driven selloff sent prices down and yields through the roof. Many SPACs with more than a year remaining traded at 4-6% yields and most with shorter duration traded at yields above 10%.

And now the S&P 500 is within shouting distance of all-time highs again and the Russell 2000 is up more than 50% from March lows. SPACs have rallied with the market, but not in the same way as before.
*FMCI (4 days remaining, trading at 119% of trust account) omitted from chart for visibility
Sponsors with a successful deal under their belt are trading materially above trust as the market has started to pay up for their common equity in advance of any deal announcement. But so far, the market has remained skeptical of first-time sponsors, sponsors of smaller SPACs, and sponsors who aren't associated with a well-capitalized financial institution.

So while there are 18 SPACs without an announced transaction that are trading above their cash in trust value, the remainder of the group is still trading at a discount. And the median SPAC is yielding 2.01% (which translates to approximately a $9.61 value for common equity if you assume a $10.00 terminal trust value and a two-year duration).
Recent SPAC deals including Virgin Galactic (NYSE: SPCE), DraftKings (NSDQ: DKNG) and Nikola (NKLA) have shown the world that an exciting SPAC deal can trade to $20 or $30 per share even before closing.

Nikola, which was previously VectoIQ Acquisition Corp. (VTIQ), went out on Wednesday 6/3/2020 at a price of $33.97 per share. And its warrants closed that day at $15.60. VTIQ's units included a full warrant. That means a buyer who held a $10 unit from May 2018 until deal closing earned a 396% return in just over two years -- all without taking principal risk!

For a long time, most participants in the SPAC market were executing a carry arb trade, earning the difference between SPAC yield and their cost of capital. But now we're seeing an increasing number who are willing to speculate on which sponsor will be the next to take a unicorn public through the backdoor. And there are more buyers in the market willing to pay up for SPAC shares before a definitive agreement has been signed.

Plenty of the interest is institutional. But retail is starting to participate in the SPAC market in a way it never has before. Last week, we looked at SPAC LOI announcements in advance of charter extensions. The market continued to respond favorably to LOI announcements this week, and a handful of the names trading above trust come from that category.

We're not going to speculate on the makeup of the buying interest on these deals. But it's worth thinking about the world in terms of float dynamics for a minute.

Often, the most successful SPAC deals take time to clear through SPAC arb inventory. It's tough to know in advance, but a stock that's headed for $13 may take some time to get there because funds engaged in carry arb can represent relatively price-insensitive sellers. This delayed-efficient market phenomenon is great if you have a fundamental opinion to express on a target company. If you're paying attention to how much of a SPAC's float has turned over since a deal announcement, you can try to get a sense of how many shares have moved into fundamental holders' hands - or at least out of the hands of SPAC arb funds.

It's hard to say if retail investors are in control of an appreciable amount of SPAC common equity. Last week, we pointed out Robintrack, a website that tracks the number of Robinhood accounts that own a given security. This week, we came across r/SPACs, a Reddit forum that's full of misinformed rumor and speculation about SPACs. The forum is two weeks old and has over 1400 members.

If it's hard to believe that retail traders are moving around the $27bn SPAC common equity market, it's much easier to believe that they're moving around the $1bn SPAC warrant market. To that end, we've updated the SPAC Warrant index so you can see the rebound over the past month or so.
We tweaked the methodology on the SPAC Research Warrant Index a bit and removed SPACs with an announced deal, since moves in warrants like VTIQW were having an outsized impact on the results. The goal here is to measure the price of SPAC warrants in advance of a definitive agreement. The Warrant Index is now being calculated dynamically on-site and you can find the live version here.

Back to retail holders for a second. To us, it's a double-edged sword. We're not thrilled at the idea of weak-handed buyers rushing into a vehicle they don't understand particularly well, only to head for the exit at the first sign of distress. On the other hand, more interest and more capital being pointed at the SPAC asset class can make deals easier for everybody and may become a self-fulfilling prophecy in some cases. Stay tuned for how this phenomenon turns out with our active class of LOI announcements over the next few months.


SPAC Alpha
In case you missed it, SPAC Research announced a business combination this week. We've already released two reports on pending SPAC deals on our new platform SPAC Alpha -- one on the ARYA Sciences Acquisition Corp. deal with Immatics Biotechnologies GmbH, and one on the Nebula Acquisition Corp. deal with Open Lending. See below.


News From the Past Week

IPOs and S-1's

  • ARYA Sciences Acquisition Corp II (ARYB) raised $130mm in an upsized IPO for an acquisition in life sciences and medical technologies. ARYB brings back Joseph Edelman, Adam Stone and Michael Altman as executives from ARYA Sciences Acquisition Corp. (ARYA), which announced a deal to acquire Immatics Biotechnologies GmbH in March 2020. Jefferies and Goldman Sachs are joint book-runners.

  • Mountain Crest Acquisition Corp. (MCAC) raised $50mm for an acquisition in North America. MCAC is led by Suying Liu, head of Corporate Strategy of Hudson Capital Inc. (Nasdaq: HUSN), a financial services firm operating in China. Liu also served as the chief strategist of Mansion Capital LLC, a privately held real estate investment firm, and has experience as an investment strategist at JP Morgan. MCAC over-funded its trust account with $10.20 per share and is the first SPAC in almost three years to sell a unit with rights but no warrant coverage. Chardan is sole book-runner.

  • Trebia Acquisition Corp. (TREB) filed to raise $375mm for an acquisition in financial services, technology, software, data or analytics. TREB is led by William P. Foley II, who served as co-executive chairman of CF Corporation (CFCO), which merged with Fidelity & Guaranty Life Insurance (NYSE:FG) in November 2017. Mr. Foley is also founder and chairman of Foley Trasimene Acquisition Corp. (WPF.U), which raised $1.035bn in May 2020 and is currently seeking an acquisition in financial technology or business process outsourcing. Credit Suisse and BofA are joint book-runners.

Deal Announcement
  • Collier Creek Holdings (CCH) announced a deal to acquire Utz Quality Foods, a leading US manufacturer of branded salty snacks. The deal reflects an initial enterprise value of $1.56bn (11.6x 2021E PF Adj. EBITDA). CCH's sponsor and directors will invest approximately $35mm alongside public investors via a PIPE at closing, and current owners will retain more than 90% of their existing equity stake, which will represent a majority ownership in the combined company. The deal is expected to close in Q3 2020.

Meetings and Approvals

  • VectoIQ Acquisition Corp. (VTIQ) closed its acquisition of Nikola Corporation on Wednesday 6/3/2020. Ordinary shares and warrants commenced trading on Nasdaq on Thursday 6/4/2020 under the symbols symbols “NKLA” and "NKLAW," with common shares closing Friday at $35.97.

  • Proficient Alpha Acquisition Corp. (PAAC) shareholders approved the company’s acquisition of Lion Financial Group at a meeting Thursday 6/4/2020. Approximately 96% of public shares exercised redemption rights, leaving just under $4.6mm in trust. No timeline has been given for closing. PAAC opted against activating its optional $0.10 per share deposit extension as shareholders approved an extension through 9/3/2020 with no contribution to trust.

  • Gordon Pointe Acquisition Corp. (GPAQ) scheduled a meeting for 6/30/2020 to approve its transaction with HOF Village.

LOI Announcement
  • Schultze Special Purpose Acquisition Corp. (SAMA) signed a letter of intent to acquire Clever Leaves, a leading pharmaceutical-grade multi-national cannabis operator. The parties intend to execute a definitive agreement in June. The LOI announcement differs from other recent ones in that the target was named explicitly and the company filed an investor presentation for the deal. SAMA traded more than 10mm shares this week above cash in trust and closed Friday at $10.55.
Charter Extensions

Upcoming Meetings and Deadlines
  • 6/8/2020 FMCI extension meeting (6/10/2020 liquidation deadline)
  • 6/9/2020 SAMA extension meeting (6/13/2020 liquidation deadline)
  • 6/9/2020 NEBU Open Lending approval meeting (6/12/2020 liquidation deadline)
  • 6/15/2020 CFFA extension meeting (6/17/2020 liquidation deadline)
  • 6/15/2020 JFK Diginex approval meeting
  • 6/16/2020 LFAC extension meeting (6/22/2020 liquidation deadline
  • 6/17/2020 OPES extension meeting (6/18/2020 liquidation deadline)

Links
  • IMN held a webinar to discuss "The Rise of SPACs in Cannabis" with executives from both Stable Road Capital and Tuscan Holdings. A replay is available here.
  • IPO Edge posted a study from Sidley Austin discussing the record number of SPAC extensions so far in 2020.
  • Jim Cramer expressed skepticism of SPACs on Mad Money Wednesday 6/3/2020. He also called out VTIQ’s $10 to $34 rally and noted that after its merger with Nikola, it will be impossible to value the combined company, adding that it isn’t likely to have a marketable product until 2023.
Disclosures: Site administrators are long ARYBU, ARYA, ARYAW, WPF.U, CCH, CCH/W, GPAQW, HCCHW, HCCHR, LACQW, NEBU, LFACW, OPESW and may trade in or out of positions in these or other SPAC securities at any time. 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.