Top 3 SPACs to trade in March 2021
This month, we spotlight three popular special purpose acquisition companies (SPACs). They are namely Reinvent Technology Partners, Stable Road Acquisition Corp and Longview Acquisition Corp.
What is a special purpose acquisition company?
A special purpose acquisition company (SPAC) is a non-operating entity that has been established with the sole intention of raising liquidity via an initial public offering (IPO) in order to acquire an existing private company.
They are also known as ‘blank cheque companies’ because investors are basically buying into a corporate shell that has been created to purchase an unnamed company within a particular industry. This is tantamount to giving a blank check to a SPAC founder.
By not identifying a specific acquisition target, a SPAC can avoid an otherwise lengthy listing, auditing and disclosure process. This approach offers a faster turnaround for sponsors than a traditional private equity fund.
Experts say going public through a SPAC can speed up a company’s market entry by as many as four months.
What value does a SPAC offer investors?
To answer this question, one should first consider how a SPAC IPO deal is structured. A typical SPAC IPO comprises a Class A common stock share (usually at an offering price of US$10) alongside a warrant.
Stock warrants function like options, giving investors the right to buy more or sell down a specific stock at a certain price level before a set expiration date.
What this means is that participating investors have the option of exercising their warrants to buy more common stock shares – on top of the original stock issuance – once the SPAC has completed an acquisition deal within a two-year timeframe.
This feature also allows investors to cash out of their SPAC shares but still keep their warrants, in the event that the eventual acquisition are not in line with their expectations.
This deal structure makes SPAC IPOs seem like a safer bet as compared to traditional IPOs especially during the current pandemic, as the prospect of better returns also came with an element of downside hedging.
But SPAC share sales are not without their critics. Two main complaints have been that SPAC deals end up being more expensive than normal IPOs due to associated fees, and that the sponsors tended to receive a large allocation of Class B Founder shares and warrants that only meant the dilution of Class A Ordinary Shares.
Nevertheless, as a result of the higher market volatility, SPACs are now seeing a massive resurgence, even though they have been around since the 1980s. More SPACs were created in 2019 and 2020 than the last 18 years combined. A total of US$26 billion in capital was raised in January 2020 alone, as compared with US$13.6 billion across the whole of 2019.
Reinvent Technology Partners (NYSE: RTP)
Reinvent Technology Partners is led by professional social network LinkedIn founder Reid Hoffman, game developer Zynga’s founder Mark Pincus and BHR Capital co-founder Michael Thompson.
The blank-cheque company, which went public on 09 November 2020, has been formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganisation or similar business combination with one or more businesses, specifically in the technology sector.
Since its debut on the New York Stock Exchange at US$10 per unit for 60 million units of one class A ordinary share and one-fourth of one redeemable warrant, share price has jumped as much as 49%, hitting a peak of US$14.89 on Friday (12 February 2021).
Year-to-date, the SPAC stock is up 28.5%.
According to Hoffman, unlike other SPACs, RTP is focused on a very different opportunity, which he and his co-directors have termed ‘venture capital at scale’.
Typically, once a company goes public through this approach, board members tended to step back, leaving the CEO without someone to play an analogous role as an experienced partner.
Another main criticism of SPACs is that they have historically underperformed the market.
However, Hoffman believes that RTP will ‘behave more like a venture capitalist than a traditional public market investor’, in which he and his co-partners will provide expert guidance to the acquired entity.
‘Rather than offering a one-time service of going public, Reinvent is a long-term financial co-founder,’ says Hoffman.
Stable Road Acquisition Corp (NYSE: SRAC)
Stable Road Acquisition Corporation, which went public on New Year’s Day last year, signed a merger agreement with Momentus Inc., a commercial space company offering in-space transportation and infrastructure services that counts Elon Musk’s SpaceX, Lockheed Martin and NASA as customers, in October 2020.
The goal of the merger is to get Momentus listed, creating the first publicly traded space infrastructure company in the world.
The combined company will have an estimated enterprise value of approximately US$1.2 billion and will become listed on Nasdaq under the ticker symbol ‘MNTS’ following an expected transaction close in early 2021.
As per terms of the transaction, Momentus will have approximately US$310 million in cash on the balance sheet, to be funded by Stable Road’s US$172.5 million of cash held in trust (assuming no redemptions) and US$175 million from a fully committed common stock PIPE at US$10 per share.
This includes investments from private equity growth investors, family offices and select top tier public institutional investors.
For potential investors, another point worth noting is that the current size of the global space economy is expected to grow from an estimated US$415 billion to US$1.4 trillion by 2030, on rising demand for transportation and infrastructure services in space.
Momentus has said that it is ‘well-positioned to address the need for inspace transportation and infrastructure services’.
SRAC’s share price is up 44.4% on a year-to-date basis.
Longview Acquisition Corp (NYSE: LGVW)
On Friday (12 February 2021), shares of Longview Acquisition Corporation closed roughly 20.4% above its starting price this year, after the SPAC announced that its stockholders have voted unanimously to approve the proposed business combination with digital health company Butterfly Network, Inc.
With this successful stockholder vote the proposed business combination is expected to close shortly.
Following the closing, the combined company will be renamed Butterfly Network, Inc. and trade on the New York Stock Exchange under the ticker symbol "BFLY".
Longview will have approximately US$589 million in cash prior to the business combination, which includes US$175 million to be received in the previously announced private placement.
Butterfly Network, founded by Dr. Jonathan Rothberg in 2011, created the world's first handheld, single-probe whole-body ultrasound system, Butterfly iQ. The company counts The Bill & Melinda Gates Foundation among existing investors.
Through its proprietary Ultrasound-On-Chip™ technology, Butterfly Network hopes to pave the way for earlier detection and remote management of health conditions for 4.7 billion people around the world currently lacking access to ultrasound.
Longview, which went public in July 2020, was formed with the aim of facilitating the successful entry of ‘high-quality, growing companies’ to the public markets. The SPAC is sponsored by an affiliate of Glenview Capital Management.
How to trade or invest in SPAC stocks with IG
Are you feeling bullish or bearish on these SPAC stocks?
Either way you can buy (long) or sell (short) the asset using derivatives like spread bets or CFDs, or by investing in the share directly. Get started on IG's industry-leading trading platform in a few easy steps:
- Create a live or demo IG Trading Account, or log in to your existing account
- Enter <company name (ie Reinvent Technology Partners> in the search bar and select the instrument
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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