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January 31, 2022
Welcome to the SPAC Research weekly newsletter.
Registration Withdrawals
Earlier this month, we started tracking registration statement withdrawals in this weekly newsletter. Historically almost every SPAC to file an initial S-1 would go on to consummate an IPO. But in December 2021, we started to see a meaningful number of SPACs decide to pull the plug on their listing.
The timing isn't shocking but it's exploring the mechanics behind this trend that appears to be gaining momentum.
The backlog of SPACs waiting to IPO started growing rapidly in January 2021. The market was hot and lots of sponsors were putting a SPAC team together. The pace of IPOs was slower than the pace of new S-1s and a queue of over 300 SPACs built up in the ensuing months.

The IPO market cooled dramatically in April but plenty of teams continued to file new S-1s. The SPAC concept remained appealing for sponsors that can credibly claim the ability to get a deal done, and a huge number of teams continued to flock to the concept.

Over the past five years, fewer than 2% of SPACs have been forced to wind up and liquidate. But the share of sponsors that will be forced to pack it up and go home may be considerably higher in the coming years. Many sponsors may be erroneously looking at historical liquidation rates as an input to their likelihood of success.

So why are sponsors just now pulling their registrations? Part of it is the abysmal performance of recent deSPACs and growth tech names in general, and the way that's impacting sponsors' expectations. But another factor is the increase in required risk capital to fund the SPAC's IPO.

As recently as summer 2021, a sponsor looking to bring a $200mm SPAC to market was looking at roughly $6mm worth of risk capital that would be required to fund the vehicle's up-front costs (underwriting fees, D&O liability premiums, legal & regulatory costs and working capital). In today's market, that same sponsor typically needs to come up with roughly $10mm in risk capital.

Remember the simple IPO unit equation:
With warrants trading down across the board and yields on the rise, sponsors have been increasingly forced to overfund trust accounts out of their own pocket in order to sell through their IPO book.
When the market cooled in April 2021, the deal environment became more challenging for sponsors. Yet new registrations kept flooding in. Even in a tough deal climate, the SPAC sponsor proposition looks fairly appealing if you can tell yourself you're in the top 50% of all SPAC teams. It's still theoretically possible to 10x your risk capital with a great deal -- although that seems more challenging by the month. And it's obviously harder to deliver a multiple on invested capital the greater the up-front amount invested is. Sponsors are typically in for a few hundred thousand dollars through the initial S-1 stage -- a dollar amount that is significant but is hardly the same order of magnitude as the $10mm it presently takes to pull off an IPO.

We've studied sponsor ROIs before. And remember, sponsor concessions and longer lockup periods mean the SPAC proposition is hardly an automatic win for sponsors, especially if they aren't adding real value to their merger partner. A SPAC deal with 30% promote concessions (fairly standard) that trades to $6 might roughly double the sponsor's risk cap investment over 2-3 years. It's an impressive outcome but it's hardly the sensationalized and inaccurate portrayal of SPAC sponsorship that's thrown about in the financial media.

Nevertheless, it feels more challenging now to shepherd a company successfully through the SPAC gauntlet than at any recent moment except right when COVID was just beginning to emerge.

Only time will tell how the current cohort of SPACs performs. But one step toward a healthier SPAC market is a culling of the herd by way of sponsors recognizing how challenging the exercise really is. An increase in the price of SPAC sponsorship is one of the keys to that trajectory that has sent some teams heading for the exits.
News From the Past Week

Deal News

  • Sports Ventures Acquisition Corp. (AKIC) announced a deal to acquire DNEG, a visual effects and animation company for the creation of feature film, television, and multiplatform content. The deal reflects an enterprise value of $1.7bn and includes a $168mm PIPE with investors including Novator Capital, Fairfax Financial and Arbor Financial. The transaction is expected to close in 1H 2022.

  • Arisz Acquisition Corp. (ARIZ) announced a deal to acquire BitFuFu, a digital assets cloud mining service provider. The deal reflects an enterprise value of $1.5bn and includes a $70mm PIPE with investors including Bitmain Technologies and Antpool Technologies. The transaction is expected to close in Q3 2022.

  • Breeze Holdings Acquisition Corp. (BREZ) announced a deal to acquire D-Orbit, a space logistics and transportation services company. The deal reflects an enterprise value of $1.3bn and includes a $5.5mm common stock PIPE and $29.1mm in convertible financing. The transaction is expected to close in Q2 or Q3 2022.

  • Social Capital Suvretta Holdings Corp. I (DNAA) announced a deal to acquire Akili Interactive, a digital medicine company developing cognitive treatments through game-changing technologies. The deal reflects an equity value of approximately $1bn and includes a $162mm PIPE with investors including Suvretta Capital Management, Apeiron Investment Group and Temasek. The transaction is expected to close in mid-2022.

  • ABRI SPAC I, INC. (ASPA) announced a deal to acquire Apifiny Group, a global cross-exchange digital asset trading network based in New York. The deal reflects an enterprise value of $530mm and is expected to close in Q3 2022.

  • Mountain Crest Acquisition Corp. III (MCAE) announced a deal to acquire ETAO International Group, a digital healthcare group providing telemedicine, hospital care, primary care, pharmacy and health insurance covering all life stages of patients.The deal reflects an enterprise value of $2.5bn and includes a $250mm PIPE. The transaction is expected to close in the summer of 2022.

  • CF Acquisition Corp. V (formerly CFV) closed its acquisition of Satellogic on Tuesday 1/25/2022 with 7.4% of public shares remaining. Ordinary shares and warrants are now trading on the NASDAQ as “SATL” and “SATLW.”

  • Yellowstone Acquisition Company (formerly YSAC) closed its acquisition of Harbour on Tuesday 1/25/2022 with 11.3% of public shares remaining. Ordinary shares and warrants are now trading on the NYSE as “SKYH” and “SKYH/W.”

  • Sports Entertainment Acquisition Corp. (formerly SEAH) closed its acquisition of Super Group on Friday 1/28/2022 with 44.9% of public shares remaining. Ordinary shares and warrants will begin trading on the NYSE as “SGHC” and “SGHC/W” on Monday 1/31/2022.

  • Trebia Acquisition Corp. (formerly TREB) closed its acquisition of System1 on Thursday 1/27/2022. Redemption statistics were not provided. Ordinary shares and warrants are now trading on the NYSE as “SST” and “SST/W.”

New S-1's
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
Sound Point Acquisition SPCM 200 BofA 102.0% 1/2
AXIOS Sustainable Growth AXAC 125 I-Bankers 101.5% W+R
Lakeshore Acquisition II LBBB 60 Network 1 100.0% 1/2+R

IPOs
Name Ticker Raised ($mm) Sector Cash in Trust Coverage
LatAmGrowth SPAC LATG 130 General 102.0% 1/2
Keyarch Acquisition KYCH 100 Technology 101.0% 1/2 + R

Registrations Withdrawn
Name Ticker Size ($mm) Underwriter Trust Funding Coverage
TCG Growth Opportunities Corp. TCG 250 GS 100.0% 1/4
Brand Velocity Acquisition Corp N/A 200 CS 100.0% 1/3
Do It Again Corp. DOIT 125 Guggenheim 100.0% 1/3
CAVU Technology Acquisition Corp. CAVU 100 Maxim 100.0% 1/2

Charter Extensions

  • ACEV extended its charter through 7/13/2022 with no sponsor contribution to trust.
  • LCAP extended its charter through 8/18/2022 with a $0.0333 per month sponsor contribution to the trust.
  • SCVX extended its charter through 7/28/2022 with no sponsor contribution to trust.

Upcoming Meetings and Deadlines

  • 1/31/2022 CCAC Quanergy Systems approval meeting
  • 2/1/2022 ENVI Greenlight Biosciences approval meeting (merger outside date 2/10/2022)
  • 2/1/2022 OCA Kin Insurance approval meeting (merger outside date 2/14/2022)
  • 2/1/2022 IVAN SES approval meeting (merger outside date 2/12/2022)
  • 2/1/2022 MCMJ Leafly approval meeting (merger outside date 2/5/2022)
  • 2/3/2022 SBEA Black Rifle Coffee Company approval meeting
  • 2/8/2022 TVAC Inspirato approval meeting
  • 2/9/2022 GCAC Cepton Technologies approval meeting
  • 2/9/2022 MBAC Syniverse Technologies approval meeting
  • 2/9/2022 ADOC Charter extension meeting (liquidation date 2/12/2022)
  • 2/10/2022 NXU Energy Vault approval meeting
  • 2/11/2022 VMAC Liquidation deadline
  • 2/11/2022 VENA 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.
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