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Tuscan Holdings Merger Illustrates Why SPACs Are Out of Control

I was probably one of the first writers at InvestorPlace to cover special purpose acquisition companies, or SPACs, long before they became trendy in 2020. So, the fact that I’ve been asked to write about Tuscan Holdings (NASDAQ:THCB) and THCB stock, a SPAC I’ve never even heard of, is somewhat ironic. 

two businessmen shaking hands with peers at their side

Source: Shutterstock

How’s that, you ask?

Well, years ago, the SPAC was a good place for hedge funds to park money during volatile periods in the markets. That’s because the structure provides for a trust account for funds raised in an initial public offering (IPO), putting a floor price on their units.

Today, it’s become, in part, a vehicle for companies to go public that otherwise might not have been able to do so because of questionable finances or iffy business models. 

In 2020, 218 IPOs raised $78.2 billion or an average of $359 million per IPO. As for SPACs, 248 raised $75.5 billion, an average of $304 million per SPAC. I’m sure 2021 will be another bang-up year for SPACs and their sponsors. 

As for Tuscan Holdings and its tentative merger with Texas-based Microvast, a manufacturer of ultra-fast charging long-life battery power systems for electric vehicles (EVs), I believe it’s a prime example of why SPACs are out of control.

Let me explain.

THCB Stock and Microvast Revenues

My InvestorPlace colleague, Tezcan Gecgil, recently suggested that if you can afford to lose 100% of your investment, THCB is a buy under $15. As I write this, its share price is right around $16, slightly above the buy price.

However, I’m struggling to figure out Microvast’s most recent revenues. Founded in 2006, you would think it would be easy to produce financials highlighting its health. 

Alas, that’s not so. 

All it said in the Nov. 13 press release announcing the intent to merge between Tuscan Holdings and Microvast was that the battery maker has “significant historical revenues.” Further, “its battery technology [is] installed in over 28,000 vehicles worldwide.” And then, further down the press release, it leaps to, “Microvast expects to generate over $100 million of revenue this financial year.”

Are we talking 2020 or 2o21?

InvestorPlace’s Mark Hake, a writer I’m usually in agreement with, recently discussed how he thought THCB stock was worth at least 50% more as long as a definitive merger was completed. 

On Dec. 3, Tuscan Holdings shareholders voted to approve an extension to consummate its business combination with Microvast from Dec. 7, 2020, to April 30, 2021.

So, my colleague is assuming all is good as long as it completes a merger by the end of April. 

But what are Microvast’s actual revenues for the past few years? Anyone?

A Recent Merger Announcement

My colleague recently discussed five SPAC mergers and three rumored mergers. One of them — CF Finance Acquisition Corp II (NASDAQ:CFII) — is backed by investment bank Cantor Fitzerald and is merging with View, a privately owned company that manufactures smart glass.

The merger announcement pointed out that the enterprise value of the combination would be $1.6 billion, including $300 million in cash from private investment in public equity (PIPE) and up to $500 million in cash from CFII’s trust account. 

On page 29 of its investor presentation, View shows $75 million and $216 million in projected revenue for 2021 and 2022, respectively. On page 27, it shows all the major markets where View smart glass is installed in North America, and yet there’s no indication what its sales were in 2020 or earlier.

Doesn’t that seem a little strange to you?

So, looking in its S-4 from Dec. 23, 2020, I found that View had sales of $24.3 million in fiscal 2019, up from $20.2 million a year earlier. In the nine months ended Sept. 30, 2020, it had sales of $24.5 million, almost double its sales in the same period a year earlier. 

In fiscal 2018 and 2019, it had combined operating losses of $542 million. In the nine months ended Sept. 30, 2020, its operating losses were $180.5 million, down from $234.9 million a year earlier, so business is getting stronger.

Only on page 32 and 34 of its presentation, it glosses over present-day financials. 

How is anyone supposed to bet on businesses that don’t even have a reasonable track record? I could care less that CFII loses a ton of money but is transparent about its sales and losses in its presentation.

The Bottom Line

Given Tuscan Holdings has only signed a letter of intent with Microvast and not a merger agreement, I wouldn’t touch THCB stock until the merger details have been provided along with Microvast’s actual financials for the past few years. That’s especially true given that the company’s been around since 2006. 

I don’t see why it’s so hard for the sponsors and Microvast’s management to say: “Microvast has steadily grown its revenues in recent years. It expects to generate $100 million in sales in 2021. It isn’t profitable and might not be for some time. However, the market for its fast-charging battery solutions is significant.”

As every day passes, SPACs are becoming less like real businesses and more like fiction. That’s not a good thing if you’re a retail investor.

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.  

Article printed from InvestorPlace Media, https://investorplace.com/2021/01/tuscan-holdings-thcb-stock-proposed-merger-illustrates-why-spacs-are-out-of-control/.

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