Editor’s note: This article was updated on March 24 to correct the nature of the relationship between AvePoint and Microsoft. 

Apex Technology Acquisition (NASDAQ:APXT) has more going for it than a lot of special purpose acquisition companies (SPACs) right now. Investors in APXT stock have reason to smile since the company announced a merger.

AvePoint is the announced merger target of APXT, and is a pretty decent one, in my view.

I’m generally bearish on most SPACs due to the lottery ticket-chasing mentality that props up valuations to levels that don’t make sense. However, I’m going to discuss why this particular SPAC is less obscene in terms of its valuation (I won’t say cheap).

I’ll also discuss why there’s room for optimism right now for investors holding onto APXT stock.

A Closer Look at APXT Stock

AvePoint is a data migration company that has actually been around for 20 years. That’s impressive – there aren’t too many multi-decade old tech companies out there today, other than a handful of names that have become ubiquitous.

This leads me to my next point: AvePoint’s customer base is impressive. Scratch that – it’s incredible.

The company’s main partner is Microsoft (NASDAQ:MSFT). Indeed, AvePoint has played a large role in data migration to Microsoft’s cloud platforms. Additionally, AvePoint has helped with Microsoft’s various migration projects for Microsoft Teams, SharePoint and other products.

This core business provides highly profitable SaaS revenue for AvePoint.

Importantly, this fast-growing revenue stream appears to be surrounded by a nice moat. The moat comes from the highly regulated nature of the products AvePoint provides.

It’s costly and painstaking to build a competitive product portfolio. The company has insulated itself well and should continue to grow nicely alongside its mega-cap clients.

Additionally, AvePoint’s clientele base outside of Microsoft is very enticing. Slide 15 of the investor presentation tells the story better than I can.

The company’s business model is equally impressive. The majority of AvePoint’s revenue is recurring, with AvePoint’s Software as a Service (SaaS) business model enticing many investors to this SPAC right now.

What About Those Merger Details?

This is the big question on most investors’ minds right now. Initially, it was expected that this deal would close sometime in the first quarter. Indeed, there’s still hope we could see some sort of announcement in the next few weeks.

That said, as with other SPAC mergers that have been pending for some time, investors may need to be patient with this one.

I’m not opposed to companies taking their time to complete any merger. In fact, I think APXT is a unique SPAC in that investors already have a pretty good line of sight into how to value this company. Investors interested in APXT are afforded the time to properly analyze the deal. That’s a good thing for investors looking to base their decisions on data.

Numbers don’t lie, so let’s have a look at the story the numbers tell for this particular SPAC.

According to the company’s Form 425: “The total equity value of the company is priced at approximately $2 billion, which translates to a 2021 projected revenue multiple of 9x and a 2022 projected revenue multiple of 6.8x.”

Expected revenue for AvePoint in 2021 is pegged at $193 million. Given the current SPAC premium of more than 30%, investors are paying slightly more on a NTM P/S basis.

That said, a forward valuation of around 7-times 2022 sales isn’t obscene, but mostly because we’ve seen some pretty crazy SPAC valuations recently. APXT stock is not cheap and investors are paying the market premium for quality today.

But at least it’s quality investors are paying for.

Conclusion

I think there’s a lot to like about the APXT-AvePoint merger. Whether or not to buy this SPAC now, or wait for AvePoint to be listed on the NASDAQ under the AVPT ticker, is another question.

I think AvePoint is a great company with Microsoft-style recurring revenues, currently trading at a premium. Personally, the price tag on this one is steep. I think you get what you pay for, so I understand it. That said, I’ll be waiting on the sidelines until this puppy trades publicly to see how the dust settles.

There’s a $140 million PIPE involved, and also a 180-day lockup period following the merger. Conservative investors may want to wait the six months to see if they can pick up shares on the cheap, assuming insiders are eager to cash in their hard-earned equity.

That said, this is likely to be a sought-after name, so I’m probably going to be wrong on this one. It’s still a growth investor’s market, and there’s going to be momentum with this stock once it hits the market.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.