Social Capital Hedosophia Holdings Corp VI (NYSE:IPOF) is the next SPAC (special purpose acquisition company ) vehicle that Chamath Palihapitiya has put in-line to merge with a large private technology company. If you believe in his stock value creation track record, IPOF stock is likely to do well.
That is why it now trades for over $15 per share, even though its IPO was at $1o. If the company does not find a target in time, it will have to return its $566 million in cash, according to its latest 10-Q, to shareholders at $1o. Management has until Oct. 14, 2022, according to page 6 of its 10-Q, to find and complete a merger.
For all practical purposes, this means that the deal has to be announced no later than 6 months before then, or April 2022. So, IPOF stock has at least a year and three months left before you might see any major news.
Or not. Never mind, investors say, he is more than likely to find a good target and we want to get a jump on the price when it announces the target. That is why the price is at a premium.
Track Record Counts with SPACs
Finding a quality private company where the owners are willing to take shares in a SPAC is highly dependent on the SPAC’s sponsor reputation. Chamath Palihapitiya has a stellar reputation in Silicon Valley. Palihapitiya has apparently reserved all the symbols from IPOA to IPOZ on the NYSE for potential SPAC issues. He has an excellent track record.
For example, he was an early investor in Slack (NYSE:WORK) which now has a $25 billion market capitalization. His first SPAC (IPOA) took Virgin Galactic (NYSE:SPCE) public, and it now is at an all-time high with a $14 billion market valuation. His next SPAC (IPOB) took Opendoor Technologies (NASDAQ:OPEN) public at the end of 2020, now with a $19 billion market cap.
However, one stumble was Clover Health (NASDAQ:CLOV), previously IPOC, which went public in early January. Since then the stock has fallen 22% or so. However, although Social Capital Hedosophia IV (NYSE:IPOD) stock has no target it is trading above $16.
What to Do With IPOF Stock
Therefore, to be blunt, this is what investors in IPOF stock expect what will happen. When the target is announced, unless it is a real dud like Clover Health, they expect to see IPOF to move at least 40% to 50% higher in value.
For example, if IPOF stock moves to $23, that implies a potential gain of over 50% over today’s price of $15.06 per share. Of course, a lot of the upside will depend on the target.
Recent reports emerged of a rumor that Stripe, a major fintech transactions company based in Silicon Valley, was a target for IPOF. If that report comes to pass, you can expect that IPOF stock will move higher. According to Crunchbase, Stripe is large enough now that it makes acquisitions of other smaller fintech companies. For example, Wikipedia reports that the latest valuation was $36 billion as of April 2020.
It’s a Gamble
If Palihapitiya is able to pull off a merger with Stripe at a higher valuation than $36 billion, IPOF stock will soar. I suspect it would easily double. The question is why would Stripe merge with this Palihapitiya SPAC when they could easily just go and do an IPO?
If they like working with Palihapitiya, then I can see this happening. This is especially so since a SPAC deal will clarify ahead of time how much capital the company will receive. I suspect that along with the $566 million in the IPOF SPAC coffers, there would be another $500 million in PIPE investment money (private investment in public equities). That is what might attract Stripe to this deal.
Please note, there is no guarantee that this is even IPOF stock’s target. It’s all speculation now. However, I believe, that given the excellent Palihapitiya track record, and the potential Stripe merger rumors, it is worth gambling a little on IPOF stock.
On the date of publication, Mark R. Hake does not hold a long or short position in any of the stocks in this article.