Although not a new type of security, Special Purpose Acquisition Corporations (SPACs) have been all the rage lately and the number of offerings over the past year has been mind-boggling. One key to choosing the most promising SPACs to invest in is knowing that throughout a SPAC’s life cycle, there are three major periods: pre-deal, definitive agreement (DA) and post-merger.
Here is a look at three names I like from each category:
These are SPACs with no target, no letter of intent, no DA or even anything in the way of rumored deals.
1. Soaring Eagle Acquisition Units SRNGU
Soaring Eagle Acquisition Corp Units gets a top spot due to a strong pedigree. These units entitle a holder to one share and one-fifth of a warrant to buy shares at $11.50. The small warrant ratio isn't as enticing as many we saw last year, but this crew has brought both DraftKings (DKNG) - Get DraftKings Inc Class A Report and Skillz (SKLZ) - Get Skillz Inc. Class A Report public via previous SPACs. Those have been two of the best performing SPACs overall. They’ve also shown good chops for finding good names in the online gambling and sportsbook space, a sector that’s projected to remain strong for the foreseeable future. It may take some time for them to find their next deal given that DraftKings and Skillz both recently debuted on the markets, but this is one SPAC investors should practice patience with.
2. Dune Acquisition Corp DUNE
DUNE shares are currently trading nearly a quarter under $10 per share. Why is this important? Well, SPACs come with redemption rights. If you don’t like the deal they sign or the company fails to sign one at all, you can redeem your shares for your portion of the cash trust that supports the SPAC. In the case of DUNE, that’s around $10 per share. It’s a nice insurance policy to have.
This SPAC is focusing on an acquisition in the Software-as-a-Service (SaaS) industry, a sector that the SPAC market has viewed as favorable. The management team has a background in SaaS via GTY Technologies (GTYH) - Get GTY Technology Holdings, Inc. Report. Again, DUNE is a newer SPAC at three months of age, but it is hard to pass up at these prices. I view the upside as $12 to $14 on a deal, and the downside as redemption around $10 per share. That’s a solid risk versus reward in virtually any market.
3. Social Capital Hedosophia Corp VII thru IX IPOG, IPOH, IPOI
These SPACs haven’t hit the market yet, but we’ve already seen plenty from founder Chamath Palihapitiya, and outside of Clover Health CLOV, they’ve all been home runs. Already public via a Social Capital SPAC are Virgin Galactic (SPCE) - Get Virgin Galactic Holdings Inc Report, Opendoor Technologies OPEN and soon, SoFi via Social Capital Hedosophia Holdings V IPOE. Chamath’s success has also carried through in his PIPEs (private investments in public equity) in SPACs that have already merged, including MP Materials MP, Desktop Metal DM, and Metromile MILE. Chamath also has three other PIPEs in SPACs that have not yet completed their mergers, but are also performing well (PIPEs are common as an additional source of funds for a SPAC when it is buying a company and the trust fund is not enough; they are usually priced at the same level the SPAC did its offering at).
Definitive Agreement SPACs
These are SPACs that have a merger partner lined up, but have yet to close the deal.
1. Foley Trasimene Acquisition Corp II BFT
Foley Trasimene II is buying Paysafe in a $9-billion "go-public." Paysafe is an integrated payments platform with a two-sided consumer and merchant network. Its core platform connects and transacts among businesses and consumers through payment processing, digital wallets and online cash solutions. Broken out, these three core pillars of Paysafe’s business appear a little different and show why I like this company. Paysafe essentially married fintech with eGaming, two of the hottest trends today and strongest areas of growth over the next decade. Moreover, one of the most impressive aspects of its three business segments is that Paysafe has the customer bases to go along with them. More specifically,
- eGaming - Proprietary digital currency solutions empowering online, mobile and in-app e-commerce for gamers and cash consumers in over 50 markets. Customers include Fortnite, Roblox, Twitch, Spotify, YouTube, DraftKings and multiple state lottery agencies.
- Digital Wallet - A network of digital wallet solutions enabling users to upload, store, withdraw and pay funds from a virtual account in over 120 markets. Customers include DraftKings, Bet365, William Hill and Betfair.
- Integrated Processing - Integrated, point-of-sale and e-commerce solutions for small and medium-sized businesses and e-commerce merchants to accept payments across channels in the U.S., Canada and Europe. Customers include DraftKings, Mindbody and NPower.
After the merger, the company will have a net cash position of $1.7 billion after subtracting out debt.
2. Rodgers Silicon Valley Acquisition RSVA
Rodgers Silicon Valley Acquisition may have started a new trend for strong SPACs buying a company in a hot sector, as it did with its purchase of Enovix. The PIPE was priced at $14 even though the SPAC did its offering at $10.
Enovix is a designer and maker of lithium-ion batteries. I'm sure many were drawn to Enovix’s talk about developing a strategy for future electric vehicle battery production, but that would be overlooking the computing markets the company already sells to using its proprietary 3D cell architecture. Enovix also has its hands in wearables, personal computers, augmented reality, virtual reality and mobile communications. Overall, there’s much more to this company than just electric vehicles, and investors should take note.
3. Tortoise Acquisition Corporation II SNPR
SNPR is the second Tortoise Acquisition SPAC for this group after a successful run with SHLL (notice a trend in their ticker symbols?). The company is buying Volta, an EV charging station producer. But Volta is also looking to transform traditional gas stations into charging stations positioned in high traffic locations. Since charging an EV will likely take longer than filling up a tank with gas, Volta’s sponsor-supported charging stations feature large, eye-catching digital displays that function as media networks, giving brands a way to reach shoppers before they enter the store. The idea is to help increase customer spend, dwell times and engagement both on-site and in-store. Right now, the EV charging station competition is a land grab, and SNPR will give Volta $600 million to build out its network.
These are recently-completed deals that have changed their ticker symbol to that of the company they've merged with.
1. Rush Street Interactive RSI
The numbers out of Rush Street Interactive earlier this month showed that this company is a real player in the online gambling sector. While investors have most of their attention on Penn National (PENN) - Get Penn National Gaming, Inc. Report and DraftKings, or even the legacy casinos, this sector is going to have multiple winners.
RSI posted a loss of a penny per share but seeing how Wall Street anticipated a loss of $0.32, this is a huge bottom-line beat. Revenue of $100 million also topped the $94.37 million analyst estimates. That represents a 260% growth year-over-year. The company is still spending to acquire customers, but real money monthly active users (MAUs) surged 116% year-over-year and 22% sequentially, with RSI actually clocking in as the number-one U.S. online casino as measured by gross gaming revenue last quarter. And with $225 million in cash, the company is well-positioned to continue advertising and promotions, building their brand and cementing users. RSI projected 2021 revenues of $440 million, versus expectations of $372 million, representing continued strong growth of 58% for the full year.
The stock is quickly becoming a must-own in the gambling arena.
Canoo debuted its fully-electric pickup truck earlier this month and while some loved the look, others didn’t. Color me intrigued, as I believe it will find plenty of buyers.
The company offers modular, purpose-built EVs. It developed the flattest and lowest profile skateboard in the industry. Think of it as a chassis, because that's what it is. The basic approach allows for a wide flexibility of applications and speed to market. Hyundai has already signed a partnership with Canoo to develop an electric car platform. Additionally, the company can develop a new vehicle in as little as 18-24 months, rather than the standard 3-5 years.
Currently, Canoo generates revenue through its engineering services. It projects 2021 revenue from this segment of the business at $150 million, and $450 million by 2024. In 2022, it will roll out its B2C platform estimated to add $1.2 billion in revenue by 2025, with a growth rate of 147% per year. Lastly, management anticipates Canoo's B2B platform will hit the markets in 2023, with revenue hitting $700 million for this piece of the business by 2025.
Over the next few years, Canoo will launch a lifestyle vehicle similar to a minivan, van, or SUV that can seat seven and travel 250+ miles on a single charge. Next will come a delivery vehicle like those used by UPS, FedEx, and Amazon. And after that will come a sports vehicle roughly the size of the Tesla Model 3, but with twice the interior space.
3. Clever Leaves CLVR
Clever Leaves is a vertically-integrated cannabis company, offering low-cost GMP-certified pharma quality cannabis via operations in Colombia and soon, Portugal. When we've spoken with Village Farms (VFF) - Get Village Farms International, Inc. Report management over the past few years, they specifically pinpointed these regions, but also noted the difficulty of breaking into them for many cannabis players.
Rather than a Canadian LP (licensed producer) or a US MSO (multi-state operator), Clever is an MNO (multi-national operator). In Colombia, it operates 1.8 million square feet of cultivation, and is the region's only Good Manufacturing Practices (GMP) certified operation. This has helped it become the top licensed producer in Latin America.
The reason why Colombia is sought-after comes down to cost. The average cost to produce a gram of cannabis for most of the largest Canadian players ranges from $1.50 to $1.89 per gram, while in Colombia, the projected cost sits around $0.20 per gram. And you're only competing with two dozen or so licensed producers instead of more than 200 in Canada. In addition, wages in Colombia are about one-sixth those in Canada.
Meanwhile, Clever is sitting on 210 acres in Portugal, along with a 2.5-acre greenhouse. The plan is to eventually have 100 acres of outdoor facilities and 25-75 acres of greenhouses. Management anticipates receiving their full license this year as it already holds a provisional license.
Over the next few years, Clever Leaves will grow to hold one of the largest dry flower extraction capacities in the world, but it already sits as one of the largest cannabis companies in the world in terms of a cultivation footprint. And when you're one of the lowest-cost producers in the world as well, that's a strong combination.
Tim Collins is a regular contributor to Real Money, TheStreet’s premium site, and provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass and others.
Disclosure: At the time of publication of this article, Collins was long SPRGU, BFT, CLVR, RSI, GOEV and SNPR.