Apologies that I’m a few days behind - I took my first flight in 16 months on Sunday, and was so excited to get on a plane and see Howie that I forgot to hit the send button. Kidding, I forgot to write at all...🙈
I’m in Phoenix this week. It’s my first time visiting here and so far the brownie in me is loving the heat! We are going to hike the Camelback mountain in a bit and I’m trying to get this out before that. So what happened in SPACs this past week? Well, nothing notable really. The market has been swiping left on SPACs for a while, and it continues that way. Well, at least it’s not as bad as the *super swipe left* that the crypto markets got on the weekend…although it seems like it was a good short term trading opportunity as the crypto seems to have rebounded since.
Yes, I know you’re all curious about this new terminology. Ok, so I recently downloaded Bumble and I think most of you know how it generally works but if you don’t, here’s a quick primer. You swipe left if you don’t like someone, and you swipe right if you like them. And if you both swipe right, then there’s a match! Then there’s an additional feature called *super swipe*. I believe it’s a paid feature but by super swiping on a person, the bumble app algorithm will try to make you really visible to them. But hey, ultimately beauty lies in the eye of the beholder. So the other person may still swipe left, and there would be no match. So that’s online dating in a nutshell, and no I wasn’t paid to write that.
In fact, within minutes of swiping (left mostly), I realized that this is a time suck and deleted the app. And although online dating may not be how I meet my Mr. Right, it did make me realize that there is a similar swiping game that is being played in the markets, especially the SPAC markets. The markets have been swiping left since the peak in late February and continue to do so, three months later. 80% of the SPACs are currently trading at a discount to NAV with an average discount of 2.1%. Whether you are Chamath Palihapitiya or Bill Foley or Betsy Cohen, you’ve been swiped left.
As I have mentioned in the previous posts, there have been a plethora of reasons that have contributed to the left swiping in SPACs...excess supply, crazy valuations, no revenue or cash flow in sight to name a few. But since the SPAC market bottomed in March, it’s as if the market got so tired of swiping left, that they deleted the SPAC app altogether. (And downloaded the crypto app). I mean here is a chart of the deal announcements from last week. Look at that performance - there is only one deal that traded above NAV. One deal. But then like Sarah Jessica Parker in Sex and the City, I couldn’t help but wonder…was every deal that bad?! I don’t believe so.
But I do believe that we have spent enough time in the purgatory now. And while I don’t know for how much longer before the sentiment turns around, I do feel that the underlying fundamentals are shifting and setting the stage for a rebound in the near future. The supply has drastically slowed down since the February peak. (There were 469 SPAC filings in Q1 2021 vs 54 in Q2 so far.) PIPE investors have smartened up. Hedgies have shorted the f*ck out of SPACs. Instead of 2025 metrics for valuations, Sponsors are demanding 2023 metrics. SEC has entered the chat. Chamath is writing OpEds for more SPAC oversight and regulations. All of this together is helping to separate the wheat from the chaff. And give it a little bit more time, and you will find the market ready to swipe right on SPACs again.
Howie and I believe that now is a great time to go long the high quality Sponsors, especially since many of them are available at a discount and with the $10 floor, it really is a no brainer. To test out our belief, we will be creating a watchlist this weekend and allocating to it. As Howie says, “SPACs are a feature and not a bug”, and they are here to stay.