SPACs as Cash Alternative with Upside Optionality

[aws]

Stupid question, but you're only allowed to redeem for NAV the SPAC units with the warrants still attached, right?  So the shares trading without the warrants attached have no such rights and will automatically be converted if a deal is approved?

[thepupil]

aws, the answer to your question is "no", you can redeem for trust value after separation. the shares trading without warrants have those rights and will not automatically be converted. 

In other news, I bought a little RACA today. post-DA SPAC at $9.9 "mid 2021" close. biotech thingamajig that at one time market liked a lot. 

base case: make 1%

bull case: make more than 1%

[aws]

Oh, interesting.  Thanks, I'll definitely have to look more into this then as I saw quite a few post deal SPACs with the warrants separated trading under $10. At this point trying to play for pops only didn't seem too attractive with the SPAC market so oversaturated, but finding deals returning 1-2% in a couple months is.

Edited May 11, 2021 by aws

[aws]

It looks like with the selloff this week that some SPACs will be a nice place to park some excess cash. I see many are selling off into the 9.70-9.80 range, and will conceivably go much further if the selloff gets worse even though it should have little impact on the value to a redeemer. I had a couple more questions to make sure I understand what I'm getting into with the strategy of post deal announcement SPACs trading under $10:

1. Are redemption deadlines always before votes on the merger? That is, do you get your money back automatically before the vote happens, in case the vote fails and your money could be locked up longer?

2. What's the worst case scenario if you buy a SPAC below $10 with the intention to redeem, assuming you are never able to sell at a profit before then? Is it something like your money is locked up for two years and there are potentially a few pennies per share of expenses so you get back a little less than $10 face value?  There's never any chance of a major loss (beyond opportunity cost), right?

So for RACA for example, is the worst case scenario that somehow the merger is called off and instead of being able to redeem in mid 2021 you have to wait until possibly the SPAC expires in July 2022?

[5xEBITDA]

7 hours ago, aws said:

It looks like with the selloff this week that some SPACs will be a nice place to park some excess cash. I see many are selling off into the 9.70-9.80 range, and will conceivably go much further if the selloff gets worse even though it should have little impact on the value to a redeemer. I had a couple more questions to make sure I understand what I'm getting into with the strategy of post deal announcement SPACs trading under $10:

1. Are redemption deadlines always before votes on the merger? That is, do you get your money back automatically before the vote happens, in case the vote fails and your money could be locked up longer? Redemption deadline is typically two days prior to the date of the special meeting, but occasionally can be subject to being a record date holder which will be set in the proxy materials. The prospectus will state whether or not redemption is conditioned upon being a record holder or simply making the election ahead of a certain date. If you vote to redeem and the merger vote is voted down, you will still get your money back. The trustee has ten business days to get your money to you following the special meeting. 

2. What's the worst case scenario if you buy a SPAC below $10 with the intention to redeem, assuming you are never able to sell at a profit before then? Is it something like your money is locked up for two years and there are potentially a few pennies per share of expenses so you get back a little less than $10 face value?  There's never any chance of a major loss (beyond opportunity cost), right? Yes it is the opportunity cost and potential expense friction. You will not face major loss beyond fraud. 

So for RACA for example, is the worst case scenario that somehow the merger is called off and instead of being able to redeem in mid 2021 you have to wait until possibly the SPAC expires in July 2022? Yes, likely 

Please see bold

[aws]

Excellent, I snagged shares in a few of them this morning when they were selling off hard premarket. Seems like you can't go too far wrong buying in the 9.70s unless you sleep through a redemption window.  Should be perfect for me since I am holding a lot of cash right now which is only mine for a year, and trying to get a little yield on it while I can.

[5xEBITDA]

On 5/11/2021 at 5:03 PM, aws said:

Excellent, I snagged shares in a few of them this morning when they were selling off hard premarket. Seems like you can't go too far wrong buying in the 9.70s unless you sleep through a redemption window.  Should be perfect for me since I am holding a lot of cash right now which is only mine for a year, and trying to get a little yield on it while I can.

Sounds good!

Don't mean to imply you haven't thought of this, but I always bake in $50,000 liquidation expenses and run the yield calc + 10 business days past the redemption date to get a "true' yield to worst on this stuff just to be safe even though 1) there won't be liquidation expenses incurred in a regular way redemption and 2) it likely won't take all ten days to get $ back to you

[thepupil]

anyone looking at SRNG, post DA, pre close at $9.90? 

buying some biotech thingamajig for 100x revenue / $15B. 

https://eagleequityptnrs.com/2021/05/ginkgo-bioworks-to-become-a-public-company-and-expand-its-leading-platform-for-cell-programming/

Edited May 14, 2021 by thepupil

[Gregmal]

I love that space, but Ginkgo is not worth anywhere near $17B. I think their recent funding rounds were somewhere around $3-5B. Maybe if we're marking to market where all that stuff traded publicly in December/January you get to a number like that, but not now.

That said, I bought some of this. Its a real nice setup. Ginkgo is one of the premier names in that space and could easily jump off the 9.9 floor if theres a sentiment reversal. A lot can change in 4-5 months.

[Spekulatius]

7 hours ago, Gregmal said:

I love that space, but Ginkgo is not worth anywhere near $17B. I think their recent funding rounds were somewhere around $3-5B. Maybe if we're marking to market where all that stuff traded publicly in December/January you get to a number like that, but not now.

That said, I bought some of this. Its a real nice setup. Ginkgo is one of the premier names in that space and could easily jump off the 9.9 floor if theres a sentiment reversal. A lot can change in 4-5 months.

 The biohazard dude on Twitter likes the SPAC too. What is the upside when a deal is announced an the SPAC doesn’t pop? it seems to me that in this situation, there is only downside left once the deal closes. If the market were exited about this, the stock would have popped already.

I think the valuation is madness? - 65M revenues for a $17B valuation This is basically a  contract manufacturing business with some royalty kickers. if you want o buy a public business that is good at these things, just buy Lonza (they do high value manufacturing mostly for pharmaceuticals).

Talking about TAM’s makes no sense with this business ,because there are no network effects, just economy of scale. There is no winner takes all dynamic - the cheapest bidder wins.

 

I think the longs hope for newsflow but I doubt anyone want to hold this this post deal. 6 month ago, this could have worked well, but now, I have my doubts.

[Gregmal]

Eh at 9.90 you get $10 worst case. But you get some free optionality while they run the hype machine. Wouldn't be shocked if everyone's favorite female fund manager starts pumping this too. Its probably not going to go to $15, and if it does Ill long be out before then. But these can and do sometimes rip on favorable coverage. 10.20-10.60 would probably be the target dump zone. If you can do that, or simply recycle a few fluctuations, its better than nothing. The other benefit is its a place holder with upside. If another idea comes along its totally dumpable. Cash is just total garbage so 1-5% over 3-6 months(maybe ever less) is an ok IRR for something with no downside so it works for me.

 

On the company itself, yea, its insane x2. Thats the problem with the vehicles and the incentives. Typically, two dudes sit down with their lawyers to hash out a deal and theyre competing. With SPACs one guy wants to get paid as much as possible and the other guy just needs a deal, ANY deal. So you get stuff like this lol. 

[Spekulatius]

^ The problem appears to be that retail isn’t playing SPAC’s any more, and that’s where the deal pops came from. So far, none of the deals I have been watching has popped and some went immediately below $10.  This is probably because the tech bubble seems to be in the process of slowly deflating and the valuation of the SPAC deals still has to reflect this reality, it seems.

I do watch some pre-deal SPAC’s from the Koshla venture series. I used to just track KVSA but just noticed that there is a whole family out there - KVSA, KVSB, KVSC all without deals so far. I think they are worth keeping an eye on, because the structure is a bit better - they have no warrants and some of the founder shares only come into play when the stock goes way higher than $10 ($30 if I remember). Koshla ventures is a very well regarded player in venture capital, so they should have decent deal flow.

 

The lack of warrants alone is worth ~$30c yet these trade around $10 and sometimes below. I believe the good reputation of the sponsor and better structure allows them to get more attractive deals negotiated,  it it’s all theory so far as they haven’t negotiated anything yet and taking their time.

 

I think those are better than 95% of all the other Pre-deal SPAC’s out there,  it what do I know. I don’t have a position, but if they break $10, I might buy some.

Edited May 17, 2021 by Spekulatius

[Gregmal]

There's not much left on deal announcements it seems...at least right now. LSAQ I had for a while was able to get out of on a deal announcement the other day at 10.70 which was somewhat underwhelming. But even that was snuffed out and now its barely above $10. But its still just placeholder stuff and if replacing cash, a better alternative and if margined at an optimal borrow rate a free call basically. Check out the Baupost and Third Point portfolios. Spac'd to the gills. Those guys are definitely getting IPOs, but now everyone can get them at $10 or less. If you can leverage it or dont have a better use/need for the cash, why not?

[DooDiligence]

Here's a new one.

www.rossacquisition2.com

[Spekulatius]

On 5/15/2021 at 6:44 PM, Spekulatius said:

^ The problem appears to be that retail isn’t playing SPAC’s any more, and that’s where the deal pops came from. So far, none of the deals I have been watching has popped and some went immediately below $10.  This is probably because the tech bubble seems to be in the process of slowly deflating and the valuation of the SPAC deals still has to reflect this reality, it seems.

I do watch some pre-deal SPAC’s from the Koshla venture series. I used to just track KVSA but just noticed that there is a whole family out there - KVSA, KVSB, KVSC all without deals so far. I think they are worth keeping an eye on, because the structure is a bit better - they have no warrants and some of the founder shares only come into play when the stock goes way higher than $10 ($30 if I remember). Koshla ventures is a very well regarded player in venture capital, so they should have decent deal flow.

 

The lack of warrants alone is worth ~$30c yet these trade around $10 and sometimes below. I believe the good reputation of the sponsor and better structure allows them to get more attractive deals negotiated,  it it’s all theory so far as they haven’t negotiated anything yet and taking their time.

 

I think those are better than 95% of all the other Pre-deal SPAC’s out there,  it what do I know. I don’t have a position, but if they break $10, I might buy some.

KVSA has a deal - looks like a dud to me:

https://www.sec.gov/Archives/edgar/data/0001841873/000119312521186080/d584526dex992.htm

 

A fairly large preclinical pipeline, one Ph1 drug and an AI platform? That doesn't seem worth $2.8B to me. I had a GTC order for KVSA below $10 outstanding which I cancelled right away (it would have filled). There are much better deals available in the public market with mid cap biotech stocks.

Edited June 9, 2021 by Spekulatius

[Gregmal]

On 5/14/2021 at 10:00 AM, thepupil said:

anyone looking at SRNG, post DA, pre close at $9.90? 

buying some biotech thingamajig for 100x revenue / $15B. 

https://eagleequityptnrs.com/2021/05/ginkgo-bioworks-to-become-a-public-company-and-expand-its-leading-platform-for-cell-programming/

Getting a little love. There's your 1%+ inside of a month, or 12%+ annualized, with zero risk. And people say they cant find anything to invest in........

[lnofeisone]

Not a SPAC but MIC is an interesting cash alternative. They have sold off all of their assets with the recent sales of Atlantic Aviation and MIC Hawaii. Atlantic Aviation will net a cash distribution of $37.35 sometime around Q4. MIC Hawaii is another $3.83 for a total of $41.18. You can buy today at $39. If it takes a year to get it all done, you get 5% return.