The month of January 2021 has been a record one for special purpose acquisition company listings. SPACs have completed nearly $26 billion of share sales during the month.
There is no doubt that SPACs have provided investors with some good opportunities to invest in quality businesses. At the same time, it’s important to be very selective. Goldman Sachs CEO Lloyd Blankfein points out that “due diligence of the SPAC process is not as rigorous as a traditional IPO.”
As such, extra caution is advisable as the markets trade at rich valuations. If broad markets witness an intermediate correction, fundamentally strong SPACs will remain resilient.
With that in mind, let’s discuss four SPACs that look attractive and are worth owning for the long-term:
- Foley Trasimene Acquisition (NYSE:BFT)
- Silver Spike Acquisition (NASDAQ:SSPK)
- Tuscan Holdings (NASDAQ:THCB)
- Longview Acquisition (NYSE:LGVW)
Best SPACs to Own Long Term: Foley Trasimene Acquisition (BFT)
I believe that BFT stock is among the high quality SPACs that can be considered for the long term. In December 2020, Foley Trasimene announced the business combination with Paysafe.
As an overview, Paysafe is a digital payments provider with focus on digital commerce and iGaming. The company’s integrated payment platform is already processing nearly $100 billion in payment volumes. Currently, Paysafe derives 75% of its revenue from exposure to e-commerce.
Another point that I like about Paysafe is the company’s tested business model and revenue generation capability. This is amid a flurry of SPAS combinations that are yet to deliver revenue or profitability.
For fiscal year 2019, Paysafe reported revenue of $1.4 billion. Between last year and FY2023, the company expects revenue growth at a CAGR of 11%. With $1.9 billion in revenue guidance for FY2023 and an expected EBITDA margin of 36%, BFT stock is attractive.
It’s also worth noting that Paysafe is well diversified in terms of business segment and geographical reach. Currently, the company derives 48% revenue from North America and 38% from Europe. Furthermore, 34% of the company’s revenue is from iGaming. I believe that Paysafe is a good proxy to play the growth in the online gaming industry.
Given these factors, I am bullish on BFT stock. The business combination is likely to create value in the next few years.
Silver Spike Acquisition (SSPK)
SSPK stock is also among the top SPACs to consider for the long term. In December 2020, Silver Spike announced a business combination with WM Holding Company, which operates Weedmaps. The latter is an online listings marketplace for cannabis consumers. The company also provides software-as-a-service (“SaaS”) subscription offering for cannabis retailers and brands.
Given the renewed optimism related to growth in the cannabis industry, SSPK stock is a quality name to consider. It’s worth noting that the cannabis industry is already overcrowded and consolidation is likely in the coming years. Weedmaps operates within the industry, but with a different business model.
WM Holding has witnessed revenue growth at a CAGR of 40% in the last five years. The company guided for FY2020 revenue and EBITDA of $160 million and $35 million, respectively. The company has 10 million monthly active users (MAUs) and over 18,000 business listings in U.S. states with a legal cannabis market.
The key point to note is that as cannabis is legalized in more states in the coming years, the company’s MAUs will continue to increase. Therefore, top-line growth is likely to remain robust and that makes SSPK stock attractive.
Tuscan Holdings (THCB)
Recently, Tuscan Holdings announced business combination with Microvast, an innovator of electric vehicle battery technology. With the news, THCB stock surged by 50% and currently trades at $21.8. I believe that the stock is worth accumulating on corrections.
In other recent news, Oshkosh Corporation (NYSE:OSK) and Microvast have entered into a “joint development agreement to facilitate future battery collaboration and innovation.” Oshkosh will also be investing $25 million in the company.
From a growth perspective, Microvast has $1.5 billion in contracted revenue through FY2027. This provides top-line and cash flow visibility. The company believes that the total addressable market for batteries is likely to be $45 billion by FY 2025. Therefore, I expect order inflow to sustain and that will boost the backlog.
For the current year, Microvast expects revenue of $230 million and an adjusted EBITDA of $12 million. Revenue is likely to increase to $2.3 billion by FY 2025 and to $6.8 billion by FY 2030. The company is also constructing a production facility in the United States. Once it’s operational (FY2022), the company’s market share is likely to increase coupled with growth in margins.
Overall, THCB stock is worth holding for the long term. As the market for electric vehicles grows, the demand for batteries will remain strong. This will help in triggering sustained top-line growth.
Longview Acquisition (LGVW)
LGVW stock, which is in a range of consolidation, is another name among quality SPACs that can be considered for the long-term.
In November 2020, Longview Acquisition announced a business combination agreement with Butterfly Network. As an overview, the company has an “ultrasound transducer that can perform ‘whole-body imaging’ with a single handheld probe.”
It’s worth noting that the investors in the company include The Bill & Melinda Gates Foundation. This provides significant credibility to the company’s breakthrough technology for the healthcare segment.
In terms of the market size, two-thirds of the world has no access to medical imaging. In addition, the company believes that two-thirds of the diagnostic dilemmas can be addressed through simple imaging. Therefore, there is a significant addressable market for the company’s hardware and software solutions.
It’s not surprising that Butterfly Network believes that the company’s top-line can grow at a CAGR of 65% through FY2024. For the same year, the company has guided for gross profit margin of 68%. The combined entity is likely to have more than $500 million in cash. Therefore, there is ample buffer to pursue research and growth.
I am bullish on LGVW stock and a break-out is likely in the foreseeable future.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.