I’ve written a series of articles about special purpose acquisition company (SPAC) stocks that recently announced their target merger deals. This week we’ll examine five new SPAC stocks with agreed-upon merger deals announced.
In addition, I am providing a bonus. A private company has announced it will do a merger with a SPAC stock, but has not said which SPAC it will use. You can peruse SPACInsider.com each day to see when the deal goes public.
According to one tracker, 50 SPACs have announced merger deals this year so far worth $11.9 billion. In addition, there are 155 SPACs looking for an acquisition, worth $56 billion. Moreover, so far this year there have been 138 SPAC IPOs that have raised $54 billion. This is well over double the total of 59 IPOs in 2019. Bloomberg says that SPACs are clearly the new “status symbol” for hedge funds and “big money.”
This week I highlight five SPAC stocks that have new merger deals that are fairly large. One deal has an implied enterprise value of $4.7 billion at the announced price.
One of the advantages of these announced mergers over regular IPOs is that the private company going public gives out more forecast and comparable data. They tend to describe their SPAC mergers so that you can better understand if it is a bargain.
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Here are the five announced deals, and one rumored deal:
- Stable Road Acquisition (NASDAQ:SRAC) — Target: Momentus
- Social Capital Hedosophia Holdings Corp III (NYSE:IPOC) — Target: Clover Health
- RMG Acquisition (NYSE:RMG) — Target: Romeo Power Technology
- Live Oak Acquisition (NYSE:LOAK) — Target: Danimer Scientific
- Oaktree Acquisition (NYSE:OAC) — Target: Hims & Hers
- Bonus Target: Faraday Future
SPAC Stocks: Stable Road Acquisition (SRAC)
Target Company: Momentus
Industry: Space Transport and Infrastructure
Pro Forma Market Capitalization: $1.6 billion
On Oct. 7, Momentus, a space transportation company with significant space company clients, agreed to merge with a SPAC called Stable Road Acquisition. The deal is valued at an enterprise value of $1.2 billion, using the original $10-per-share IPO price for SRAC.
As CNBC points out Momentus offers a “last mile delivery service for spacecraft,” such as satellites. Some of its main clients include are SpaceX, Lockheed Martin (NYSE:LMT) and NASA.
The company was founded in 2017 in Santa Clara, California, by Mikhail Kokorich, a serial Russian retail entrepreneur. He moved to the United States and started a series of upstart firms. Forbes has written several very interesting articles about his trajectory in the U.S. with Momentus.
For example, the company’s key technology is a vehicle called Vigoride, a water-based plasma thruster. Momentus already has a booking backlog of $90 million and a “pipeline” of $1 billion. This is based on its interesting slide presentation.
The SPAC deal is also very interesting. As I have pointed out in the past, SPAC deals are much more open for investors about the company’s expected valuation than traditional IPOs.
For example, Momentus lays out its calculation of the expected future value. It also compares this valuation to other companies in its field.
Based on my calculations, the stock will be worth significantly more than its present pro-forma market capitalization. I believe SRAC stock, which will change its symbol to MNTS after the merger closes later in the fourth quarter, is roughly worth 192% more than today’s price. This is a great value.
Social Capital Hedosophia Holdings Corp III (IPOC)
Target Company: Clover Health
Industry: Medicare Advantage Health Insurer
Pro Forma Market Capitalization: $4.7 billion
On Oct. 6, Clover Health, a next-generation Medicare Advantage company, agreed to merge with a SPAC called Social Capital Hedosophia Holdings III. The deal is valued at $3.7 billion at the IPOC IPO price of $10 per share. However, since the stock is now at $10.68, its pro forma market capitalization is now $4.7 billion.
Based on the company’s slide presentation, Clover intends to become a major player in the Medicare Advantage arena. Medicare Advantage companies get reimbursed by the U.S. government to insure and administer Medicare network plans for those 65 years of age or older. Clover uses technology to lower the costs of administering these plans.
Clover claims it is the fastest-growing Medicare network plan in the 34 counties (in seven states) it markets its plans. It is growing quickly and will be in 108 counties in 2021.
Moreover, Clover looks undervalued. The company will be EBITDA positive in 2023. On page 55 of the IPOC slide presentation, the company shows that its EV-revenue ratio is 36% lower than its peers. I estimate that the stock will have an upside of 34% to 40% from here.
However, not everyone agrees. For example, this YouTube video on a channel called “A Couple Cents” that analyzes the Clover deal is well worth watching. The analyst shows how he believes Clover stock is more expensive than its peers.
SPAC Stocks: RMG Acquisition (RMG)
Target Company: Romeo Power Technology
Industry: Lithium-Ion Battery Manufacturer
Pro Forma Market Capitalization: $1.4 billion
On Oct. 5, RMG Acquisition announced a merger with Romeo Power Technology. Romeo is a battery power company that designs and makes lithium-ion battery modules and packs for commercial electric vehicles. In addition, when the merger closes in Q1 2021, it will be renamed Romeo Power. The symbol will change on the New York Stock Exchange to RMO.
Romeo’s battery electric vehicle (BEV) lithium-ion products are focused on the trucking market. It has completed building a 7-gigawatt-hour capable manufacturing plant in Los Angeles. The company claims it has “over $300 million of currently contracted revenue.” BorgWarner (NYSE:BWA) is a major investor in and client of the company.
The transaction deal is being done at a $900 million pre-money valuation at the $10 IPO price for RMG. Romeo will receive $340 million at the closing, according to the slide presentation.
Moreover, based on projections in the slide presentation and its valuation analysis, the stock is deeply undervalued. For example, its peers have an average EV-revenue ratio for 2023 of 2.6 times, while Romeo has a ratio of 1.3 times.
That leads me to believe that the stock is inherently worth at least 92% more. Look for RMG stock to move higher over the next year.
Live Oak Acquisition (LOAK)
Target Company: Danimer Scientific
Industry: Bioplastics
Pro Forma Market Capitalization: $912 million
On Oct. 5, Danimer Scientific, a next-gen bioplastics company, agreed to merge with a Live Oak Acquisition, an NYSE-listed SPAC. Danimer makes PHA, a biodegrading plastic under its Nodax brand name. This is used to make degradable water bottles, straws and food containers.
The deal is valued at $505 million in enterprise value at $10 per share. For example, this includes $385 million that Danimer will receive after the merger closes. That means that the deal market cap is $505 million. However, since LOAK stock is now at $10.25 at the time of this writing, the pro forma market capitalization for the stock is now at $912 million.
I found the company’s slide presentation was a little difficult to follow. However, on page 24, the company has a valuation comparison that shows that the stock is about 36% undervalued.
For example, the average EV-EBITDA ratio of Danimer’s peers is about 15 times, whereas Danimer will be valued at about 11 times. That implies 36% upside for the stock. In addition, so far there is no indication of what the new symbol will be for the combined companies when the merger closes.
SPAC Stocks: Oaktree Acquisition (OAC)
Target Company: Hims & Hers
Industry: Telemedicine and Health
Pro Forma Market Capitalization: $2 billion
On Oct. 1, Hims, which does business as “Hims & Hers,” agreed to merge with an NYSE-listed SPAC, Oaktree Acquisition. Once the deal closes the new symbol will be HIMS.
Hims wants to be the “digital front door to the healthcare system” for millennials. For example, it offers doctor-patient consultations online within one hour, compared to an average of 2-to-3 week waiting time for traditional appointments. Its average primary care visit cost is $39, against $200-$300 for the typical doctor.
Moreover, the SPAC merger deal has an enterprise value of $1.6 billion assuming a $10 price for OAC stock. Now that OAC has risen, the implied EV value is now $1.8 billion. The implied pro forma market cap for OAC stock is now $2.02 billion.
Moreover, that means that Hims is worth about twice its present price, based on the data the company provided in its slide presentation. For example, on pages 35 through 38 of the slide deck, the company provides the transaction details, projections and comp valuations.
This looks like a fast-growing next-gen health company that is likely to be worth considerably more in the future, once the merger closes.
Bonus SPAC: Faraday Future
The last item is a bonus. Faraday Future, an electric vehicle company, is proposing to go public through a SPAC, according to news reports.
However, Faraday has not yet identified the SPAC stock. SPAC stocks with these EV company mergers have tended to do well. Therefore, keep checking to see when the deal will be announced. That way you can be an early investor in the SPAC it chooses.
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.
Mark Hake runs the Total Yield Value Guide which you can review here.
