I wanted to write an essay about Microsoft and TikTok today, because I was effectively a full-time reporter covering the software giant when it hired Satya Nadella in 2014. But, everyone else has already done that and, frankly, there’s a more pressing financial topic for us to parse.
Let’s take a minute to take stock of SPAC (special purpose acquisition companies), which have risen sharply to fresh prominence in recent months. Also known as blank-check companies, SPACS are firms that are sent public with a bunch of cash and the reputation of their backers. Then, they combine with a private company, effectively allowing yet-private firms to go public with far less hassle than with a traditional IPO.
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And less scrutiny, which is why historically SPACs haven’t been the path forward for companies of the highest-quality; a look at the historical data doesn’t paint a great picture of post-IPO performance.
But that historical stigma isn’t stopping a flow of SPACs taking private companies public this year. A host of SPACs have already happened, something we should have remarked on more in Q1 and Q2.
Still, better late than never. This morning, let’s peek at two new pieces of SPAC news: electric truck company Lordstown Motors merging with a SPAC to go public, and fintech company Paya going public via FinTech III, another SPAC.
We’ll see that in hot sectors there’s ample capital hunting for deals of any stripe. How the boom in alt-liquidity will fare long-term isn’t clear, but what is plain today is that where caution is lacking, yield-hunting is more than willing to step in.
Electric vehicles as SPAC nirvana
The boom in the value of Tesla shares has lifted all electric vehicle (EV) boats. The value of historically struggling public EV companies like NIO have come back, and private companies in the space have been hot for SPACs as a way to go public in a hurry and cash in on investor interest.
This is not inherently bad, nor is it misguided. When public investors are willing to hand you lots of cash for a relatively low price in terms of dilution, you should probably take it. That’s just good management. How the investors in the SPACs out there bouncing often revenue-free EVs into the public space will wind up making out themselves is less clear.
Today’s news that Lordstown Motors will list on the Nasdaq by merging with DiamondPeak Holdings is an example of the trend. The company’s vehicle, dubbed the “Lordstown Endurance,” is expected to see “initial production … in the second half of 2021,” according to its own release.
(That sound you heard was your humble servant bursting into laughter.)
But we shouldn’t chuckle due to Nikola, another EV company that SPAC’d its way into the public markets earlier this year to rapturous investor demand. Its shares rapidly appreciated after its combination with SPAC VectoIQ, and the company is now looking to sell more shares to bolster its own accounts. Nikola has no revenue and is worth $11.3 billion this morning, according to Google Finance.
In that market, how can you not go public immediately? Lordstown is just reading the damn charts and acting accordingly, as have others. As Barron’s noted in covering the EV SPAC boom, EV powertrain shop Hyliion combined with SPAC Tortoise Acquisition Corp, and Fisker wants to go public via a merger with Spartan Energy Acquisition Corp, yet another SPAC.
What’s one more?
You might be wondering what sense it makes to take several revenue-free and revenue-light EV companies public in a big rush despite there being slim indication that there is outsized and growing demand for their wares? I would too, if I was the sort of person who invested in individual stocks. But I don’t, and even if I did I wouldn’t gamble on SPACs.
Lots of folks, however, are into it. Expect Lordstown to be something fun to watch, if nothing else.
Software, too
The SPAC boom is more than just an EV mess, however. News this morning records that payment processor Paya intends to merge with FinTech III, creating a company that will have an enterprise value of around $1.3 billion when the deal is complete by their own math.
Notably, Paya has no known venture funding per Crunchbase, though it has bought a few smaller companies. According to its PR materials, “Paya is a leading integrated payments provider, processing over $30 billion for over 100,000 customers.” Cool.
Paya makes a hell of a lot more sense as a deal than the EV shops we’ve seen SPAC ahead to the Nasdaq in recent weeks. Paya appears to be a real company with material revenues and, we presume, growth. It’s not a showman with a PowerPoint suddenly dealing with a grip of public investors.
And Paya is not the only software company to be looking at the public markets via a SPAC lens: Just a few days ago Porch.com announced that it, too, was going to go public via a SPAC; in its case, the PropTech Acquisition Corporation. (You can laugh at that name.)
It’s easy to argue that SPAC-ing a company saves time and some fees, and I suppose that’s fair. But seeing so many companies skip the traditional vetting process to get their butts into the public markets while the getting is good feels worrisome to my more conservative financial bent. Perhaps I am getting old and boring. Or perhaps SPACs are today what they always have been: A way for companies where a more traditional offering was not attractive, or possible, to get public regardless.
Caveat emptor. Looking at today’s SPAC market it feels only slightly less silly than the 2017 ICO boom.
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