Hi Everyone!
Happy Halloween 👻🎃 Hope y’all went out and had fun halloweening this weekend! I sure did. And lucky me for having friends who are so considerate - they did let me leave at 3 am last night because they know I got da blog to write. But dammit, I should’ve hired a ghostwriter for this week as I decided to go out and be a ghost (killer)! But oh well - hope you enjoy this week’s hangover edition. 🙏
Spooky szn seems to have also brought SPACky szn with it as $SPAK, the SPAC ETF ended the month up 7.31%. Things have been bearish in the spac land since the Ides of March, so this is a welcome respite. I won’t deny that it was a bit weird to see Trump (and not Chamath) lead the return of SPACs with his $DWAC deal announcement last week, but nonetheless it seems to have been a positive catalyst for the sector, albeit a bit on the meme-y side.
The $DWAC deal also doesn’t seem to be a one-hit meme wonder because we already saw a second pop when $BRPM announced their merger with FaZe Clan on Monday. The stock shot up to $15.30 before coming down to NAV but the Twitter and Reddit soldiers are getting ready to pump the bad boy for a round two as I type this.
Obviously, this doesn’t add to the credibility of an already fragile asset class but I’m welcoming the volatility, because that leads to action which in turn affects the price movement and makes the asset class interesting again. The low vol environment in the last few months where every SPAC was just depressed made the sector too boring, and caused an investor exodus, including the guys sliding in my DMs.
The sentiment also seems to be improving on the issuance side as October saw 58 new SPAC IPOs, the highest number since March. This is because the issuers have finally gotten on board with the new terms as 85% of these SPAC sponsors offered overfunded trusts, and 95% have priced with wider terms including 1/2 warrant coverage or more. Remember, back in March the average warrant coverage was 1/4 and some were even ballsy to offer no warrants at all. (No, I don’t mean Brad Gerstner for issuing $AGCB with no warrants but Vinod Khosla perhaps could have offered some warrants on $KVSA/$KVSB/$KVSC/$KVSD given that was his first SPAC rodeo). But I digress. The point is that as the market cooled off, it took a while for Sponsors to adjust to the new normal but it seems like they are ready to hit that ISSUANCE button again.
On the performance side, below are the top 10 gainers for the month of October - $DWAC’s parabolic move was obviously the outlier but there were other decent names on the list that traded quite significantly above NAV. I’ve written about $AGC and $XPDI recently, both as potential long term holds but they also seem to be the beneficiaries of the retail mob rally as both were up ~23% in the last month, on no real news except that the merger close date is imminent.
Here were the top 10 losers in October. Doesn’t really warrant that much attention tbh, because the entire sector has mostly been trading below NAV for the last six months. But there is one thing that is really worth highlighting - the lowest price was $9.25, which is 7.5% below NAV but because you can redeem for NAV before the merger close, the downside is really non-existent (unless of course you bought it above NAV but even then its capped).
And there is room for every kind of investor - from a risk averse type to a Yolo trader type. Because on the low end of risk side, you can buy a pre-deal SPAC below NAV and redeem for NAV and do better than every money market fund out there. And on the high side, if this improved sentiment holds, there is a great possibility for the stocks to pop again on the deal announcements. The asymmetry of the SPAC market is truly beautiful. And wow, I do sound like a nerd writing that.
On the post-deal performance: Out of the 115 deals that are waiting to close, 52% are now trading above NAV, which is again consistent with the recent enthusiasm. Now that I’ve had some time to reflect on it, I think that Trump’s deal giving SPACs the first botox lift was actually a good thing. Because now, when Chamath announces his deals (hopefully soon), then that will further cement the faith in the sector as opposed to him being tasked as the initial and sole reviver of the SPAC market.
I will dive deeper into the performance of recently de-spac’ed companies next week as we are also starting to see the good quality names finally emerge from their SPAC shadows and be evaluated for their quality and not how they chose to go public.
That’s my rant for this week. Thanks for tuning in! What did you guys dress up as??! Send me your pics!
-Nikita