Recently there has been a flurry of new SPAC (special purpose acquisition company) mergers announced with private companies. This article will analyze five recent SPAC stock mergers as well as three SPAC mergers that may be close to being made public.
SPACs are clearly becoming more mainstream, especially for private companies that want to go public quickly. A recent Crunchbase article points out the very considerable advantages SPAC mergers have over IPOs for private companies.
You can also read my earlier articles on SPAC mergers, such as the most recent on Nov. 10. Most of these announced mergers will close in Q4 or early Q1.
This week there are several unique proposed mergers, including one SPAC that, incredibly, will close on the merger of two different companies.
In addition, there is another electric vehicle SPAC and a glass company SPAC merger. Moreover, there is a new type of insurance company going public this way. And there is the obligatory software company.
So here is the list of the announced mergers of SPAC stocks and the target private companies I’d like to talk about today:
- Northern Genesis Acquisition Corp (NYSE:NGA) — Merger Target: The Lion Company
- CF Finance Acquisition Corp II (NASDAQ:CFII) — Merger Target: View
- INSU Acquisition Corp II (NASDAQ:INAQ) — Merger Target: Metromile
- GigCapital2 (NYSE:GIX) — Merger Targets: UpHealth and Cloudbreak
- Apex Technology Acquisition Corp (NASDAQ:APXT) — Merger Target: AvePoint
In addition, there are those three rumored SPAC merger deals that have not yet been officially announced (and still may not be). These are discussed at the end of the article.
Let’s dive in and take a look.
SPAC Stock Mergers: Northern Genesis Acquisition Corp (NGA)
Merger Target: The Lion Electric Company
Industry: Electric Truck and Bus Manufacturer
Pro Forma Market Capitalization: $2.6 billion
A Quebec, Canada-based electric vehicle maker called The Lion Company announced on Nov. 30 a merger with Kansas City, MO-based SPAC called Northern Genesis (NGA). The deal involves the raising of additional capital through a PIPE (private investment in public equity) for $200 million.
In the end, the deal will result in The Lion Company being listed on the NYSE under symbol LEV with a net amount of around $500 million in their coffers. This will allow the company to fully fund its five-year growth plans making electric trucks and buses.
The 33-page slide presentation that came along with the deal announcement is very interesting. The company expects to select a state either in the West of the U.S. or the Midwest to establish a manufacturing plant. This is in addition to their existing Montreal-based plant which produces 2,500 EV trucks annually today.
The economics of the deal are also appealing. For example, NGA stock has already risen over 32%, raising the pro forma implied enterprise value of the deal to $2.1 billion (see my table above).
Nevertheless, based on the presentation and my analysis, the forecast EV-to-Revenue ratio for 2024 is still at 0.67 times. This is well below the peer average ratio of 0.73 times.
As a result, NGA stock (LEV stock after the merger) still has at least 47% upside, to $19.48 per share. SPAC public shareholders will own over 20% of the company. This is higher than average, which bodes well for the long-term.
CF Finance Acquisition Corp II (CFII)
Merger Target: View
Industry: Smart Glass Manufacturer
Pro Forma Market Capitalization: $2.2 billion
On Nov. 30, an NYC-based SPAC, backed by investment banking firm Cantor Fitzgerald, agreed to merge and raise capital for a smart glass company based in Silicon Valley called View, Inc. View is a next-generation leader in smart windows that uses artificial intelligence and machine learning. It “tints glass to optimize natural light while controlling heat and glare.” This makes smart connected buildings with lower energy use and greenhouse gas (GHG) emissions.
The deal involves a $300 million PIPE from institutional investors and will raise $513 million on a net basis for the combined company. The new symbol on NASDAQ for when the merger closes is not yet set.
View has over 1,050 patents and its windows are installed in all major real estate markets in the U.S. It is not pre-revenue, with $31 million in sales this year. This should grow to $1.89 billion by the end of 2025.
Based on today’s price, CFII stock has a pro forma enterprise value of $1.69 billion. Using the company’s presentation, I estimate it is worth at least $5.3 billion, or over 200% higher than today’s price. SPAC investors will own 23% of the combined company.
This is based on its 2024 forecast EV-to-revenue ratio of 1.78 times, compared to a peer average of 6.7 times. Look for good things to happen to this stock when the deal closes.
INSU Acquisition Corp II (INAQ)
Merger Target: Metromile
Industry: Auto insurance
Pro Forma Market Capitalization: $1.5 billion
On Nov. 24, a Cohen & Co. (NYSEAMERICAN:COHN)-sponsored SPAC announced a merger with a leading new type of insurance company called Metromile. This is a pay-per-mile auto insurer that is trying to disrupt the $280 billion auto insurance industry.
The thesis is that most people are overpaying for insurance. Two-thirds are low-mileage drivers and they are charged too much by traditional insurers. The coronavirus pandemic led many to stop driving and are working at home. They then found their auto insurance was too high. As a result, Metromile, a leader in the pay-per-mile (PPM) new type of insurance, took off.
Now, Mark Cuban and a number of other investors will invest in the $160 million PIPE deal that will come with the merger. This is because the company claims that on average its customers save 47% vis-a-vis their prior insurance.
The SPAC merger is ideal for investors in this case, as page 39 of the associated presentation shows the company’s projected finances. They expect to be profitable on an operating margin basis by Q2 of 2022.
This company is hard to value. There are no public peers in this category and the company does not show any comparisons. The pro forma enterprise value is $1.25 billion, including $294 million to be raised in the merger. This is about 12.9 times the 2024 forecast operating profits of $97 million.
There seems to be a high degree of risk and variability in this projection and therefore it is not possible to estimate what the stock is worth. Moreover, SPAC investors will only own 17.6% of the combined company, which will also trade under a new symbol, MLE, at the close of the merger.
Merger Target: UpHealth Holdings and Cloudbreak Health
Industry: Digital Healthcare
Pro Forma Market Capitalization: $1.47 billion
On Nov. 23, a Palo Alto, CA-based SPAC named GigCapital2 signed two simultaneous merger agreements with both UpHealth, Inc. and Cloudbreak Health. The new name of all three will be UpHealth and will trade on the NYSE. The new symbol will be UPH when the merger closes.
UpHealth is a leading digital healthcare provider and Cloudbreak Health is a leading telemedicine and video medical interpretation company. All three companies will have an integrated global platform. They will serve four of the fastest-growing digital health markets: Integrated Care Management, Global Telehealth, Digital Pharmacy, and Tech-enabled Behavioral Health.
The pro forma enterprise value at today’s price is $1.47 billion. GIX stock has not risen since the deal announcement. In addition, the slide presentation associated with the merger shows rough projections on page 31 of revenue of $346 million by 2022 and $69 million in EBITDA profits.
However, investors in the SPAC will own just 12.4% of the combined company. This is well below average for most SPAC deals. That is one reason why despite raising $106 million in net proceeds, the combined company has a pro forma enterprise value of just $1.37 billion based on my calculations.
Based on the company’s estimates of peer valuations on page 42 of the presentation, it appears this pro forma EV is well below other comps. For example, the company says that the peer EV-to-Revenue multiple is 12.9 times, whereas GIX / UPH has a pro forma ratio of just 6.9 times. This implies that as of today GIX stock has an upside of 74%.
Apex Technology Acquisition Corp (APXT)
Merger Target: AvePoint
Industry: Data Management
Pro Forma Market Capitalization: $2.7 billion
This last one is a straight software technology merger. On Nov. 23, Jersey City-based tech company AvePoint agreed to merge with Apex Technology Acquisition Corp (APXT). Based on a 38% gain in APEX stock, it now has a pro forma enterprise value of $2.49 billion.
AvePoint says it is the largest data management solutions provider for the Microsoft cloud. The deal will provide $252 million to the combined company’s coffers and essentially gives it a $2.74 billion pro forma market capitalization given the rise in APXT stock.
Moreover, this is one of the rare deals that will also pay cash to existing shareholders at AvePoint. They will receive $257 million in a cash payout. Nevertheless, existing SPAC shareholders will still only control 17.6% of the combined company, which is lower than normal.
From information on page 27 of the company’s presentation, revenue will be $257 million by 2022. This puts its pro forma EV-to-revenue multiple at 9.7 times.
The presentation provides a comparison with peers on page 29 that show an average multiple of 14.2 times revenue. Therefore, I estimate that APXT stock is still worth about 46% more, once the merger closes.
Rumored SPAC Stock Deals
Several recent magazine articles report that three different deals are close to final terms. Keep in mind that there is no guarantee these deals go through, so be careful. But, despite that, they might allow investors to get in on these SPAC mergers before they are publicly released.
On Dec. 1, Bloomberg reported that Transfix, a freight logistics startup, is in exclusive talks with a SPAC called Tuscan Holdings Corp II (NASDAQ:THCA) to discuss a possible merger. There are no deal terms. The article says that the prior valuation was $800 million for this VC-funded startup.
On Nov. 29, the Financial Times reported that famed investment bank Perella Weinberg Partners was considering going public via a SPAC merger with FinTech Acquisition Corp IV (NASDAQ:FTIV). FTIV has raised $230 million in its IPO. According to the FT, the SPAC merger is to be based on terms of a $760 million proposed valuation for the combined company.
Another Bloomberg article on Nov. 6 suggested that a UK payments company called PaySafe Group, backed by the Blackstone Group (NYSE:BX) was considering going public via a merger with a SPAC started by billionaire Bill Foley. That SPAC is called Foley Transimene Acquisition Corp II (NYSE:BFT). However, so far there has not been any follow-on announcement. Investors might brace for the idea that this deal has possibly fallen through.
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.