I’ll forgive you if you’ve never heard of Churchill Capital Corp IV (NYSE:CCIV) and CCIV stock.
Anyone with a full-time job that’s not in finance probably has a hard time keeping track of all the special purpose acquisition companies (SPACs) going public these days. In January alone, there have been 80 through Jan. 26. In 2020, there were 248. One of those was CCIV, which raised $1.8 billion through the July 2020 sale of 180-million $10 units.
Although the time it takes for a SPAC to find a target seems to have gotten shorter, the average, according to Nasdaq Chief Economist Phil Mackintosh, is 15 months. So, the rumors circulating that it may merge with the luxury electric vehicle manufacturer, Lucid, after only a six-month search – as I write this, it hasn’t happened – would be quite an accomplishment.
Back in September 2020, I recommended 10 SPACs to buy.
One of those was Churchill Capital’s fourth offering. My primary reason: ex-Citibank executive Michael Klein was the jockey for this particular SPAC. His fourth in short order.
In many instances, the SPACs to ride are those with first-rate jockeys. After all, are you buying Pershing Square Tontine Holdings (NYSE:PSTH) for any other reason than it’s captained by Bill Ackman and $4 billion in firepower? I don’t think so.
So, my question to investors is this: Does it really matter if CCIV buys Lucid?
Yes, Lucid’s got a beautiful car, but I still believe Churchill Capital is all about Michael Klein and his ability to find a suitable target. If Lucid falls through, so be it.
How, then, should investors evaluate CCIV stock? I believe you must deal with what’s in front of you and not what might be.
What Does CCIV Stock Bring to the Table?
Well, I can think of $2.1 billion reasons. That’s the amount of marketable securities CCIV has that is held in trust.
I won’t take the time to figure out how many SPACs raised $1 billion or more in 2020. We know that the average SPAC raised $336 million last year based on $83.3 billion in total proceeds and 248 listings. Klein’s was almost 7x the average SPAC. That’s nothing to sneeze at.
A company that knows a thing or two about SPACs is The Gores Group, a Los Angeles-based investment firm that’s made more than 120 acquisitions since its founding in 1987.
The Gores Group has done nine SPACs to date, two of which it has completed with co-sponsors. It doesn’t focus on the “euphoric” deal. It looks for deals that make sense.
“We look for companies that are lenders in their space with a strong management,” The Gores Group’s head of alternative investments, Mark Stone, told PE Hub recently.
The Gores Group is currently looking for targets for three SPACs, which collectively have raised $1.3 billion. It’s working on another that will raise $400 million.
The point being is that investment firms such as The Gores Group understand the M&A arena. This means they’re odds of success for delivering SPAC success ought to be higher merely because of their experience.
Michael Klein’s raised more than $4 billion in SPAC money, including CCIV, which puts him in rare company with a handful of people that can make this claim.
Klein’s first SPAC was Churchill Capital. It raised $600 million in September 2018. It became Clarivate (NYSE:CCC) when it merged with the data analytics firm in May 2019. It’s up 280% based on a $10 unit over 29 months. That makes it the 13th best-performing SPAC, according to SPAC Analytics.
I’ll take a 10% monthly return every day of the week and twice on Sundays.
According to a November 2020 Bloomberg Opinion piece, the downside is that Klein’s own boutique investment firm, M. Klein & Company, profited greatly – it received $30 million in advisory fees – from the due diligence done on the Churchill Capital Corp. III merger with Multiplan (NYSE:MPLN) that closed in October.
MPLN stock is currently trading 21% below its $10 unit price. That’s definitely not looking like a win for Klein at the moment, but it’s only been four months since the merger was completed.
The Bottom Line
As my InvestorPlace colleague, Josh Enomoto said recently; Lucid’s brought to market a high-end vehicle that can not only keep up with Tesla’s (NASDAQ:TSLA) so-called luxury offerings, it can run circles around it.
“Call me stupid, but I don’t believe the EV technology is robust enough now, even at scale, to be competitive in the reasonable income bracket,” Enomoto wrote on Jan. 25. “But on the higher end? It’s very viable. But the numbers, of course, are limited. That means you’re going to compete with Tesla, and, in that case, you’ve got to bring strengths against Tesla’s weaknesses.”
I think he’s bang-on in his assessment of Lucid’s opportunity. Whether or not Churchill Capital and Lucid can work out their marriage details is another question entirely.
What I do know is that Michael Klein’s long-term track record for SPACs is still to be written. Further, I think it’s way too early to write him off.
As jockey’s go, I still believe he’s worth betting on, with or without Lucid.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.