I’ve written several articles about SPAC (special purpose acquisition companies) stocks that recently announced their target merger deals. This week we’ll examine four more SPACs that just announced mergers and will likely close their deals by the end of the year.
In addition, I will quickly look at two other larger SPAC stocks that have not yet announced mergers. However, they are likely to do so in the coming weeks. This is because the 18-to-24-month deadline to complete a merger is fast approaching for both. After that date, they would have to give the money raised in their IPO back to shareholders.
Many of these SPACs are likely to jump higher when they close their mergers. I will try to sort that out. In addition, the non-announced SPAC stocks have a chance at a double whammy. First, when they publicly announce their merger target, and second, when, and if, that merger goes through.
Here are 4 SPAC stocks with newly announced merger deals:
- Trine Acquisition (NYSE:TRNE)
- Gores Metropoulos (NASDAQ:GMHI)
- LF Capital Acquisition (NASDAQ:LFAC)
- GreenVision Acquisition (NASDAQ:GRNV)
Let dive in and take a look at these 4 SPACs.
4 SPAC Stocks With Recent Merger Deals: Trine Acquisition (TRNE)
Merger Target: Desktop Metal, Inc.
Market Capitalization: $4.2 Billion
The market for this technology is expected to grow from $12 billion at present to $146 billion over the next 10 years. The metal 3-D printing industry has been growing at a 25% compound annual growth rate over the last 3 years. This is up from 20% in the prior decade. Most of the company’s clientele seem to be in the automotive manufacturing industry.
Desktop Metal will receive $575 million, $300 million from cash and TRNE stock and $275 million from a PIPE (private investment in public equity) at $10.00 per share. The company believes the post-merger cash on hand will be $625 million and its post-transaction market value will be $2.5 billion. The symbol on the NYSE will change to”DM” after the reverse merger.
Desktop Metal says this $2.5 billion equity valuation is based on 1.9 times expected 2025 sales of $942 million. Page 4 of its presentation slideshow gets into this, but the company hasn’t revealed its present revenue and earnings. The presentation is very slick but hard to buy into. Going out five years to estimate present market value for Desktop Metal seems like a stretch.
At this point, I cannot tell if there are any public comparables to value the company nor is there any information on its past financial performance. The present market value for TRNE stock is $4.2 billion. That’s already 68% more than its own projection of a $2.5 billion valuation. I think caution is best here.
Gores Metropoulos (GMHI)
Merger Target: Luminar
Market Capitalization: $1.02 Billion
On August 24, Luminar, an automotive lidar technology company, agreed to a reverse merger with Gores Metropoulos (NASDAQ:GMHI), a SPAC stock. Lidar sensors use lasers to make 3-D representations of objects. Luminar is used by 7 of the top 1o global automakers for auto self-driving technology. Also, it claims to have 50 partner companies, including Volvo which will use Luminar’s products in its 2022 vehicles.
Gores Metropolous will contribute $400 million in cash to the deal and a number of high rollers including Peter Thiel, who first funded Google, will supply an additional $170 million. The company claims the deal will have an estimated enterprise value (EV) of $2.9 billion, based on a projected market value of $3.4 billion. The stock ticker will change to “LAZR.”
Interestingly though, as of today the stock has a market cap of just $1.06 billion. So if the transaction promoter’s expectations come to pass, the stock could more than double.
However starting on page 24 of Luminar’s slide presentation, the financials show EBITDA losses up until the end of 2024. In 2024 it will make $124 million, more than doubling to $365 million by the end of 2025.
That puts the expected $2.9 billion of EV after the merger closes (assuming the stock rises over 100%), at 8 times the EBITDA of five years in the future. Assuming at least a 15% discount rate, the present value of the 2025 EBITDA is actually just half of that (49.7%). So the real EV-to-EBITDA number is actually twice the stated number, or 16 times EBITDA. That’s a little high.
Nevertheless, today’s valuation of $1.06 billion for GMHI stock is too low. It implies a paltry $500 million EV and just 1.36 times 2025 EBITDA. Even after discounting it is about 2.7 times. Therefore I believe a more appropriate price is at least twice today’s pricing. Expect to see GMHI stock (and LAZR post-merger) to double upon closing.
LF Capital Acquisition (LFAC)
Merger Target: Landsea Homes
Market Capitalization: $182.5 million
On August 31, Landsea Homes, a Newport Beach, CA, homebuilder focused on first-time buyers in California and Arizona, agreed to merge with LF Capital Acquisition Corp (NASDAQ:LFAC). Landsea’s parent is actually a Hong Kong-listed company, Landsea Green Properties (HKSE:106). The Hong Kong parent will end up owning 67.4% of the merged company when the $510 million deal closes. The symbol will change to “LSEA.”
This deal is interesting since it is being completed below Landsea’s June 30 tangible book value of $484 million, or 84%. In addition, the company will receive $35 million issued at a price of $10.56 per share. As of September 2, the SPAC stock was trading just above that price, at 10.57 per share.
Therefore, without deep-diving into the company’s financials, I believe investors in LDAC stock (soon to be known as LSEA) are getting a good bargain. For example, KB Homes (NYSE:KBH) sells for 1.42 times its tangible book value.
Right now LFAC stock trades at a market value of $182. However, even before reading through all the financials of the proposed transaction, I suspect that today’s price equals the proposed market value of $510 million. That is because the company will be issuing shares and warrants to the owners of Landsea Homes.
Therefore, to trade at 1.4 times book value, the stock must rise to $678 million in value. That implies that LFAC stock (later LSEA) will be worth 33% more than today’s price.
However LSEA stock might not be overvalued using another metric. Both KB Homes and Landsea, at the $510 million valuation, trade for the same ratio of sales, at 75%.
This stock deserves further study, but could be undervalued by anywhere from 0% to 33%.
GreenVision Acquisition (GRNV)
Merger Target: Accountable Healthcare America
Market Capitalization: $72 million
On August 27, GreenVision Acquisition (NASDAQ:GRNV), agreed to merge with Accountable Healthcare America (AHA). AHA is a Florida based Medicare healthcare provider with 13 primary care clinics and 68 primary care practices. It has 326 providers and a total of 28,000 patients on its technology platform.
The beauty of this deal is that AHA is already extremely profitable. For example, it expects to make $17.6 million in EBITDA during 2020 and $22.6 million in 2021. The merger will allow AHA to receive $57.5 million before deal expenses and will be done assuming a value of $150 million or 8 times 2020 EBITDA, and 6 times 2021.
These ratios are very reasonable and I suspect that the stock will likely rise after the deal closes. For example, AHA management will get a bonus if the stock rises above $12.50 after the deal closes and stays there for 20 days, or the company makes $17.5 million in EBITDA.
Moreover, the company says that the deal is at a 35% discount to other comparables in the public market. A 35% discount implies that the stock could rise by 53.8% (i.e. 100% divided by 65% equals 1.538). Right now GRNV stock is still at $10.07, so I suspect it will rise much more than that by the time the deal closes.
No symbol has yet been attached to the post-merger company.
SPAC Stocks That Could Be Close To Announcing Mergers
The following SPAC stocks could be close to announcing a merger. That is because the time limit for them to close a deal is fast approaching. However, keep in mind that the majority of SPAC stocks do not trade above $10, their original IPO price, for good reason.
For example, the Financial Times wrote a very interesting article recently, asking if SPAC stocks could shake their bad reputation. Every investor in SPAC stocks should read it. That article showed that only about half of SPACs have found merger targets. Moreover, many SPACs have fallen for shaky or outright fraud merger targets.
This is why I always tend to prefer to wait until a SPAC has actually chosen a target merger company. This allows for due diligence, analysis and projections to be done on an intelligent basis.
Nevertheless, using caution, take a look at the following pre-merger SPACs. Tuscan Holdings (NASDAQ:THCB) has an expiration date of December 6. The company held $282 million as of June 30 and is looking for a merger target in the cannabis industry. Right now THCB stock has a $361 million market cap.
Another SPAC stock to consider is GigCapital2 (NYSE:GIX), which has a $227 million market value. It has $172 million in trust cash and its 18-month period to find a target ends on December 10 to complete a merger. Based on a recent report in Barron’s, it is looking for a candidate company in the technology, media, or telecom industries.
The following table summarizes all the companies and the key points mentioned in this article:
Click to Enlarge
Source: Mark R. Hake, CFA
These four SPAC stocks should be carefully studied as several offer substantial upside. The pre-merger deals also might be worth considering since they have substantial assets waiting to be employed. In addition, their areas of merger interest that are hot today.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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