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SPAC Deals Lacking Punch + SWBK Taking Bird Public

The recent SPAC deal momentum lacks any punch as 10 of 11 May deals are trading below $10. Today's deals (SWBK, CENH) not likely to break the trend. Expect more credit investors to join as it is all about yield now.

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Tuesday saw SPACs go deeper below NAV as pre-deal and announced deal SPACs were all dealt further blows. Pre-deal SPACs are now averaging just $9.85 and nearly 90% are trading below $10. This is bad news for any investor who bought in during "Peak SPAC" at exuberantly high prices or those who are counting on significant price pops from deal announcements. 

Today's SPAC market has shifted almost entirely to a yield play over the last several months as it came down from its highs in February/March. Many day trading retail investors will certainly become bored by the current environment in which the long game is the primary play. But, don't be surprised to see more investors come in as the credit side increasingly eyes SPAC yields (with a hint of upside potential) as an attractive play relative to pure credit given today's rates.

SPAC Deals Lacks Punch

We've seen a flurry of SPAC deals in the past week and a half, two more this morning (see below), that gave the feel of momentum, but ultimately lacked punch. Only one out of eleven deals announced in May is trading above $10 which is a bad sign for any sponsor announcing a deal over the course of the next month.

The common theme from investors is that they still don't believe the valuations and financials for most of the deals coming through. Even in instances where the target company isn't purely speculative (e.g. flying taxis) and have legitimate revenues, the valuations remain at levels that few can get excited about.

Deal Announced | Close | SPAC
May 11 | $ 9.87 | SRNG - Soaring Eagle Acquisition Corp. --> Ginkgo
May 11 | $ 9.90 | AURC - Aurora Acquisition Corp. --> Better
May 10 | $ 9.91 | AUS - Austerlitz Acquisition Corporation I --> Wynn Interactive
May 10 | $ 9.85 | HCIC - Hennessy Capital Investment Corp. V --> Plus
May 10 | $ 9.90 | STPC - Star Peak Corp II --> Benson Hill, Inc.
May 10 | $ 9.98 | LIVK - LIV Capital Acquisition Corp. --> AgileThought
May 07 | $ 9.88 | LOKB - Live Oak Acquisition Corp. II --> Navitas Semiconductor
May 07 | $ 10.10 | LSAQ - LIFE SCI ACQ II --> Science 37
May 07 | $ 9.88 | STWO - ACON S2 Acquisition Corp --> ESS TECHNOLOGY
May 06 | $ 9.93 | AMHC - Amplitude Healthcare Acquisition Corporation --> Jasper Therapeutics
May 03 | $ 9.90 | MAAC - Montes Archimedes Acquisition Corp --> Roivant Sciences

Wednesday Deals - CENH and SWBK

Today's deal between CENH - Centricus Acquisition Corp. and Arqit Limited will likely feel similar. As with most SPAC deal decks the financial projections are typically aggressive with revenue growing from an estimated $14m in 2021 to $660m in 2025. 

CENH / Arqit Financial projections. Source: company filings

CENH / Arqit Financial projections. Source: company filings

What was somewhat unusual was to see the peer sets chosen for both financial metrics and valuations. In what may be an explicit effort to counter the current investor perception that all SPAC deals have valuations that are too high and financials that are too aggressive, CENH and Arqit have included a "Recent SPAC Transactions" peer set alongside more business-relevant peers.

CENH / Arqit Peer definitions. Source: company filings

CENH / Arqit Peer definitions. Source: company filings

Many will see the comps against the "Recent SPAC Transactions" as irrelevant to the CENH/Arqit deal as there is very little actually in common between the 

Switchback II (SWBK) also announced a deal this morning and is taking Bird Rides, Inc. (“Bird”) public in a deal valued at $2.3b. Investors will remember Bird as the electric scooter company that was founded in 2017 to help solve short-term mobility problems within cities where neither walking nor driving were attractive options.

The deal includes a $160m pipe led by Fidelity Investments. It also is supported by a $40m vehicle financing credit facility through Apollo Investment Corporation and MidCap Financial Trust.

Bird/SWBK financial projections. Source: Company filings

Bird/SWBK financial projections. Source: Company filings

As investors digest the deal, they will also look closely at comps. Bird has selected some heavyweights (e.g. Tesla, Netflix, Peloton) in an effort to create excitement about their future potential, but it will ultimately come down to whether investors can (a) get behind the valuation and (b) get excited about the larger narrative.

Bird/SWBK peer benchmarking. Source: Company filings.

Bird/SWBK peer benchmarking. Source: Company filings.

Aging SPACs Feeling the Heat

Even with the poor performance post-deal announcement of nearly every SPAC that has announced in the past month, sponsors and teams will need to get deals done in order to get paid. Remember that most SPACs give themselves 18-24 months to find a deal before having to vote for an extension. 

That will put aging SPACs, like the below, under real pressure. Worse for them will be the fact that they are almost all starting at a pretty significant discount to NAV which means the deals will have to look great to generate real price enthusiasm.

Close | Age | SPAC
$ 9.95 | 18 months | MCMJ - Merida Merger Corp. I
$ 9.94 | 18 months | CHPM - CHP Merger Corp.
$ 9.92 | 16 months | SCVX - SCVX Corporation
$ 9.86 | 15 months | CCAC - CITIC Capital Acquisition Corp
$ 10.11 | 15 months | ZGYH - Yunhong International
$ 10.05 | 14 months | DFPH - DFP HEALTHC ACQ
$ 9.85 | 14 months | PLMI - Plum Acquisition Corp. I
$ 9.88 | 11 months | TREB - Trebia Acquisition Corp
$ 9.95 | 11 months | BRLI - Brilliant Acquisition Corporation
$ 10.14 | 11 months | GSAH - GS Acquisition Holdings Corp II
$ 9.81 | 10 months | CPSR - Capstar Special Purpose Acquisition Corp.
$ 9.84 | 10 months | PTK - PTK Acquisition Corp.
$ 9.80 | 10 months | HPX - HPX Corp
$ 22.63 | 10 months | PSTH - Pershing Square Tontine Holdings
$ 9.81 | 10 months | ERES - East Resources Acquisition Company
$ 10.11 | 10 months | GRCY - Greencity Acquisition Corp
$ 9.96 | 10 months | PRPB - CC NEUBERGER PR
$ 9.75 | 10 months | ETAC - E.Merge Technology Acquisition Corp.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report.)