2020 has been a banner year for special purpose acquisition companies (SPACs) and the sector has raised more than $21.5 billion as of the beginning of August.
Although SPACs have been around for decades, the concept has recently started to generate significant traction. In 2016, SPACs raised $3.2 billion and attribute the increase to the type of people who are putting these deals together.
From Richard Branson to Chamath Palihapitiya, some of the smartest investors in the world have launched a SPAC. We believe that these high-profile investors have added a sense of credibility and legitimacy to an industry that seems to be in a bubble.
Although the SPAC market has become saturated, we believe that selectivity is key and expect many to be successful. Today, we want to highlight 5 SPACs that we are closely following as we believe that these are opportunities to be aware of.
- One of the most high-profile SPAC deals involved Richard Branson’s Virgin Galactic (SPCE). The space focused company received a large investment from venture capitalist Chamath Palihapitiya’s SPAC Social Capital Hedosophia Holdings. Chamath’s SPAC acquired a 49% stake in Virgin Galactic for $800 million before it went public. Currently, Virgin Galactic is valued at more than $4 billion and this has proved to be a great investment for Chamath.
- In 2020, Bill Ackman, founder of Pershing Square Capital Management, sponsored his own SPAC, Pershing Square Tontine Holdings. His deal was the largest-ever SPAC and it raised $4 billion in July. Recently, there have been rumors that the SPAC may attempt to acquire Bloomberg or AirBnb, but there is no confirmation of this and is purely speculation at this point. Ackman is a respected hedge fund investor and we believe that his involvement in the SPAC sector is significant
- Nikola Corporation (NKLA) is a SPAC that has been focused on the electric vehicle industry. The company has taken investors on a wild ride that culminated with the CEO stepping down. A few months ago the shares traded above the $70 level before pulling back. After the decline, Nikola rallied back up to $50 on new that General Motors (GM) will acquire 11% of the business. After this, the shares plunged after Hindenberg issued a short report on Nikola and the shares continue to trade in a volatile manner. The report was very negative on the electric car company and the name of the game going forward is execution
- Last month, Martha Stewart announced that she will joined the Board of Directors of an indoor farming SPAC that considers itself to be the future of agriculture. The company, Novus Capital Corp. completed a go-public transaction through a reverse merger and the recent trend has not been great. Novus announced that it would merger with AppHarvest which operates a 60-acre facility in Kentucky that the company says is one of the world’s largest high-tech greenhouses. The deal is expected to close in the late fourth quarter or in early 2021 and its first harvest of tomatoes is anticipated early next year. The capital that was raised by the SPAC will be used to scale AppHarvest’s indoor farming facilities and this is an opportunity that we will be following.
- In the cannabis industry, Merida Capital Partners has made the largest splash in the SPAC market. Last year, Merida Merger Corp. I (NASDAQ: MCMJ) (NEO: MMK) reported to have raised $120 million via a dual listing on the Nasdaq and Canada’s NEO Exchange. The listing was significant and was the first SPAC to be backed by a private equity firm that is focused on investing in the cannabis industry. The principals at Merida have helped build and operate sophisticated cannabis cultivation facilities and have invested in a broad spectrum of cannabis-related companies ranging from data analytics companies to hydroponic suppliers. We are favorable on the track record that Merida has and will monitor how the team is able to execute.