Spartan Energy Acquisition (NYSE:SPAQ) joined the recent wave of companies that are going public via a reverse merger with a special purpose acquisition company (SPAC). SPAQ stock is hovering around $12.30.
SPAQ shares belong to Spartan Energy Acquisition Corp, a SPAC that was backed by Apollo Global Management (NYSE:APO). Spartan had initially agreed with Fisker, a relatively recent addition to the world of electric vehicle (EV) makers, on a reverse merger. The initial date was set for Aug. 14. However, that date has now been delayed to Feb. 14, 2021.
When the IPO finalizes, the merger will allow Fisker to raise capital and achieve a listing on the Big Board via a SPAC. By merging with Spartan, privately held Fisker will be able to avoid various steps and hurdles to go public or sell new shares.
Here’s what you can expect from SPAQ stock.
SPACs Are Hot
The Security and Exchange Commission (SEC) classifies SPAC as a blank-check company whereby its purpose is “to pool funds in order to finance a merger or acquisition opportunity within a set time frame. The opportunity usually has yet to be identified.” They have recently gathered increasing attention as an alternative method of going public instead of the traditional IPO route.
Once a SPAC is formed, it typically has a two-year window in which it must identifies a potential merger partner to take public, the company typically has a two-year window to conduct a target company selection process, propose an acquisition to shareholders and acquire the company.
The share price of a SPAC usually goes up substantially after the merger announcement. And following the completion of the merger, the fate of the stock understandably depends on a plethora of factors.
Not all reverse mergers with SPACs are necessarily successful. Many companies go below the $10 level and do not create much value for shareholders. Yet there are others that become quite successful.
Recent months have seen several successful SPAC-listings such as DraftKings (NASDAQ:DKNG), Nikola (NASDAQ:NKLA) and Virgin Galactic (NYSE:SPCE). All three are higher than the price their opening prices. However, all three have also come off their all-time highs that were seen soon after going public.
What to Expect From SPAQ Stock
When the initial news of the SPAQ reverse merger became public, market participants immediately compared it to Nikola, which mainly concentrates on heavy-duty fuel cell trucks as well as EVs. Despite the fact that Phoenix-based Nikola currently has no income related to manufacturing and selling vehicles, within a matter of weeks, NKLA stock went from an opening price of $37.55 on June 4 to an all-time high of $93.99 on June 9. Now it is hovering at $43.
It is not possible to know whether SPAQ stock will follow a similar trajectory when the IPO closes. However, there are several similarities between Nikola and Fisker.
For starters, 2020 has become the year of EVs and alternative-fuel energy cars. It feels like every investor wants to find the next Tesla (NASDAQ:TSLA). Therefore, whenever there is good news on TSLA stock, other industry shares also get lifted by the rising tide. InvestorPlace‘s Matt McCall recently wrote in detail about the hype behind EVs and SPAQ stock. He cautions investors and I agree with him.
Another important similarity between Fisker and Nikola are that the two companies are not yet manufacturing or selling any cars. Fisker’s founder Henrik Fisker is hopeful that the first deliveries of its “Fisker Ocean” cars will happen in late 2022.
Fisker Ocean is expected to be fully electric SUV with premium features. The company describes the car as “all-electric, zero-emissions, with vegan interior and recycled materials throughout.”
Although the choice of words to introduce the EV is powerful, end of 2022 is at least two years away. A lot can happen until then. Now that the IPO has been delayed, Fisker does not have the necessary funding to start producing the cars.
InvestorPlace’s Chris Lau has recently discussed how Nikola has been mostly about talk and promises. Right now, it is valued at $15.7 billion. However, there is no revenue to justify that valuation. In comparison, Ford’s (NYSE:F) valuation stands at $27.3 billion.
Meanwhile the EV space is becoming rather crowded. Not a month goes by without a new EV company or more hype in the news. All these businesses are competing in a low margin industry where customer expectations are running increasingly high. Could we expect consolidation in the industry in the coming months?
The Bottom Line
If you are not currently a shareholder in SPAQ stock, you may want to wait until the IPO completes successfully in the next several months.
Similarly, if you’re considering investing in SPAQ stock for the long-term potential of Fisker cars, then you may also want to give management more time to put their vision into action and start delivering cars. With a new company, it is important to analyze the trend in its fundamental metrics. Investors should demand a clear path to revenue and even profitability, which may take at least several years.
Most analysts highlight the potential of EVs and most people clearly see the potential. However, that does not mean any company that has a vision for an EV will become a stock-market success.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.