Spartan Energy Acquisition (NYSE:SPAQ), a special purpose acquisition company (SPAC), has recently been getting increased investor attention. Therefore, we will take a closer look at what to expect from SPAQ stock in the coming weeks.
Earlier in July, SPAQ’s management announced it would be merging with the Los Angeles, California-based Fisker, a privately-held company that is working on commercializing the Fisker Ocean, which the company describes as “the world’s most sustainable vehicle” that is expected to become available in 2022. The date for the completion of the deal was initially set for Aug. 14. But it has now been delayed to Feb. 14, 2021. There will be a special meeting of stockholders in late October to vote on the proposed reverse merger.
Are you hoping to capitalize on the popularity of the renewable energy and electric vehicle (EV) sector? If you are not yet a shareholder, you may consider staying on the sidelines before committing new capital into SPAQ stock. It may prove prudent to give management time complete the deal and start manufacturing cars. Here’s why.
SPACs Are In The News
Among other developments, 2020 has become the year of SPACs, which are publicly listed blank-check companies. They are increasingly used to take private companies public. Those who prefer SPACs regard the traditional initial public offering (IPO), as expensive and time-consuming.
Daniele D’Alvia of Birkbeck University of London highlights SPACs “are non-operating companies, and so do not pursue any industrial aim; they raise funds on primary capital markets with a view to increasing returns for investors; and finally, the management is in charge of the direction of the SPAC.”
Recent months have seen a number SPAC-listings such as AdaptHealth (NASDAQ:AHCO), DiamondPeak (NASDAQ:DPHC), DraftKings (NASDAQ:DKNG), Immunovant (NASDAQ:IMVT), Nikola (NASDAQ:NKLA), Repay Holdings (NASDAQ:RPAY), Social Capital Hedosophia II (NYSE:IPOB) and Virgin Galactic (NYSE:SPCE).
In most cases, investors’ risk appetite has meant higher prices for many of these SPAC stocks. However, in September, news around Nikola, which specializes in electric and hydrogen-powered trucks, raised eyebrows. Short-seller Hindenburg Research has accused the company of fraud and both the Justice Department and the SEC are reportedly investigating the company.
On Sept. 24, SEC Chair Jay Clayton appeared on CNBC to give his views on SPAC transparency and said he’d like to see more disclosures, especially regarding areas of equity ownership and incentives for the sponsors bringing the SPAC to market. He commented “In some ways, it’s very healthy, it creates a competition around the way we distribute shares widely to the public market… For good competition and good decision making you need good information.”
It’d be safe to assume that the debate surrounding SPACs will continue in the coming years and the SEC “will be paying attention to what’s happening in the market,” as Mr. Clayton said.
Where SPAQ Stock Is Now
Regular InvestorPlace.com readers will note that SPACs typically start trading at a range of $8-$10. At that point, investors would be betting that the SPAC’s management team will be able to find a target business for a possible reverse merger. When the SPAC announces a potential candidate, the share price usually starts going up.
A similar trend has occurred in SPAQ stock. On July 8, the shares closed at $10.81. Then on July 13, they hit an intraday peak of $21.60. But now, they are hovering at $14.
It is hard to know how the future of SPAQ stock will come. In general, following the completion of the merger, the fate of the stock understandably depends on a range of factors. However, this deal is not likely to close for several more weeks, which means uncertainty for market participants.
Potential investors should remember that Fisker is not yet manufacturing or selling any cars. Its founder, Henrik Fisker, is hoping first deliveries will be in late 2022. However, a lot could happen in the next two years. Therefore, investors should consider whether they are ready to invest in plans and hopes of another young company in the electric vehicle space, which also has been very hot this year. After all, everyone seems to be looking for the next Tesla (NASDAQ:TSLA) stock.
Valuing new companies neither in the EV nor SPAC space is easy. Therefore, an investment in SPAQ stock may not be appropriate for everyone.
The Bottom Line
2020 has clearly been a a bonanza year for reverse mergers via SPACs. Despite the question marks surrounding Nikola shares, we can expect more SPACs to come to the market in future quarters. In the meantime, choppiness will be the name of the game around most of these names, especially in the initial quarters following the announcement of a merger.
Investors who are able to commit risk capital may want to consider buying SPAQ stock if the price moves toward $12.5. Those who are interested in EVs, may also consider exchange-traded funds (ETFs) that may be appropriate for the growth in the sector. They include SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL), the Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW), and the ARK Autonomous Technology & Robotics ETF (NYSEARCA:ARKQ).
Finally, we should highlight that there is now an ETF in the SPAC space. The Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK) started trading on Oct. 1. Therefore, investors may want to keep the fund on their radar. SPAQ stock is a holding of the fund.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 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. She also publishes educational articles on long-term investing.
