It's a Schitt’s Creek
Hi Everyone! 👋
I don’t binge on Netflix very often, but recently I was looking for something light and fun to watch and I stumbled on Schitt’s Creek. I know I know, it’s not even that funny but each episode is 21 minutes long which feels quite affordable in the currency of time and there are 6 seasons, which means that the non-funny humour will last for a while. And I can actually relax because I don’t have to use my brain. My family and friends don’t seem to buy the logic but I’m quite enjoying it. I’m actually on Season 5 now and being a natural mimic artist, I seem to have also picked up some of Alexis’ character quirks. So if you see me this week, my natural enthusiasm may be a bit more animated. You have been warned!
Okay but you smart folks know why I really mentioned Schitt’s Creek. It’s because the real-life SPAC Creek seems to have turned into a Shit Creek. Not sure what season we are in yet, but 88% of all post-split common shares were trading below NAV this past week. 50% of pre-split units closed below NAV. 7 out of the 8 SPAC deals that were announced are trading at a discount.
We know that deals don’t pop anymore, but I’m actually surprised at how negative the sentiment seems to be given some of these deals do make sense from a thematic perspective. For example, Wynn Resorts is spinning off its online gaming division Wynn Interactive, and merging with Austerlitz Acquisition Corp. ($AUS), a Bill Foley SPAC in a $3.2B deal (4.5x 2023 Revenue). Cannae Holdings is backstopping the deal, so there are no PIPE issues. Wynn formed the Interactive division in October 2020 by acquiring a 72% stake in BetBull for $80M and is currently live in 6 US states. Covid has already accelerated the i-gaming trend and with the impending legalization of sports betting in the major US states, Wynn is well positioned to succeed. The deal is expected to close later this year, which gives us some time to see which other states will follow New York’s lead in legalizing sports betting. And since we will still have the optionality to redeem for par, buying $AUS at $9.88 makes sense as you can only wynn in this trade. 😉
Another one that caught my attention was Starpeak ($STPC) merger with Benson Hill, a sustainable food technology company. The deal is valued at $1.3B (8.7x 2022 Revenue) with a $225M PIPE that was led by VanEck, Blackrock, Hedosophia, and Lazard. For context, that compares to Beyond Meat and AppHarvest’s NTM EV/Sales metrics at 11.2x and 72.7x respectively. Again, just looking at the macro picture where the TAM of this plant based industry will continue to grow and the public comps for where the peers are trading, it seems that market is being overly punitive for this name to be trading below NAV.
But it’s not that SPACs alone are being punished. It is worth highlighting that overall the IPO market seems to be in shitty creek. The Renaissance IPO ETF ($IPO) that tracks US companies for 2 years after they’ve gone public, also peaked in mid February and is down 26% since. There were 45 IPOs in April and 12 so far in May, raising a total of ~$17.3B including some prominent ones like Coinbase, Applovin, TuSimple, and Utime. 21 out of the 57 IPOs have significantly underperformed so far, suggesting an overall bearish sentiment in which the supply is just not getting absorbed very well.
As the trade has flipped, the new quick alpha seems to be coming from shorting these recent SPACs and IPOs. Or there are some HODLERS out there, who are also slowly building their SPAC positions. Dan Loeb has been scooping up a lot of discounted SPACs as revealed in Third Point’s latest 13F Filing. $AGC, $AGCB, $KVSA, $AUS, $IPOD, $IPOF, $SLAC to name a few. Cathie Wood also mentioned in her monthly webinar that ARK has switched to buying SPACs as they have become attractive from a risk/reward perspective.
Seems like shots are being fired at Bitcoin too as I type this. Apparently, Elon woke up angry this morning because people didn’t like his SNL performance… Well never a dull moment! Hope you all have a great week ahead. And who knows, we may even hear from the SPAC King on a deal or two 😉