SPAC double downer makes room for clever trade

Aeye

24/05/2021 14:07

(The authors are Reuters Breakingviews columnists.  The
opinions expressed are their own.)
    By Christopher Thompson and Richard Beales
    LONDON, May 24 (Reuters Breakingviews) - Pity the newly
troubled world of special-purpose acquisition companies. There's
new scepticism about the acquisitions sought by blank-check
companies and the value of their own stocks. But there's also a
silver lining: the double downer makes room for a clever, almost
risk-free trade.
    The SPAC world became so febrile that the record roughly 250
U.S. initial public offerings in 2020, raising $83 billion, was
overtaken on both measures in just the first quarter this year,
according to SPAC Research. Activity has, however, slowed, hit
both by America's securities regulator sounding several alarms
and by a selloff in high growth stocks in general.
    With more than 400 of the vehicles still seeking targets,
valuations for so-called de-SPAC mergers, the industry’s fancy
word for their transactions, were getting frothy. The deals rely
on institutions like BlackRock  BLK.N  and Fidelity coming in as
co-investors alongside SPACs, adding both credibility and funds.
These firms are increasingly wary, something bankers say is
bringing down de-SPAC values. As one example, Cantor
Fitzgerald-sponsored CF Finance Acquisition Corp III  CFAC.O 
cut the previously agreed valuation of target AEye, a
self-driving technology firm, by 20% to $1.5 billion earlier
this month.
    Buyers of SPAC shares – often including retail investors,
especially after deals are announced – have lost enthusiasm,
too. Of the 36 SPACs with announced deals in April and May
tracked by SPAC Research, 25 are trading at stock prices below
$10, the standard SPAC IPO price and one that's backed by the
cash held by the vehicle.
    That's the key to the opportunity. SPAC investors typically
have the right to redeem shares at $10 before a merger closes.
Buying shares below that value means they can guarantee a return
by merely asking for their money back. If they think a
particular de-SPAC target will add value, they can hold onto
their stock.
    Better still, most SPAC shares initially come with warrants,
essentially options to buy more shares later. Buyers who want
these combined stock-and-warrant units have to take the plunge
soon after a SPAC's IPO, before the two parts become separately
traded. But canny traders who snap up units for less than $10
can redeem shares for a small profit and still get a boost from
the warrant. That's almost free money.
    Follow @CGAThompson https://twitter.com/CGAThompson and
@richardbeales1 https://twitter.com/richardbeales1 on Twitter
    
    CONTEXT NEWS
    - Blank-check vehicles have raised $100 billion globally
this year via public listings, according to data from Refinitiv
as of May 19, dominated by special-purpose acquisition
companies, or SPACs, in the United States.
    - In the peak month of March, 116 SPACs raised a combined
$34.5 billion. The number of listings dropped to just 18 in
April, raising $3.9 billion.
    - For previous columns by the author, Reuters customers can
click on  THOMPSON/  and  BEALES/  

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Refinitiv SPAC data announcement     https://thesource.refinitiv.com/thesource/getfile/index/c7ed295f-9d77-4551-9506-cf910c394db1
BREAKINGVIEWS-SPACs can reverse listings decline with SEC’s help
    urn:newsml:reuters.com:*:nL1N2LZ20W
BREAKINGVIEWS-The house always wins with SPACs     urn:newsml:reuters.com:*:nL1N2KW1KW
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
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 | Column by Christopher Thompson in London and Richard Beales
in New York. Editing by Lauren Silva Laughlin and Amanda Gomez)
 ((Christopher.G.Thompson@thomsonreuters.com;
richard.beales@thomsonreuters.com; Reuters Messaging:
Christopher.G.Thompson.thomsonreuters.com@reuters.net;
richard.beales.thomsonreuters.com@reuters.net))