The special purpose acquisition company (SPAC) boom has quickly turned into a bust. It’s not hard to see why. A bunch of hastily assembled SPACs all came to market at once and subsequently disappointed investors. SPACs prior to 2020 were known for underwhelming performance as well. So it’s hardly shocking that folks are shunning them once again. However, this aversion is leading to buying opportunities for good SPACs caught up in the crossfire. One such example is Apex Technology Acquisition (NASDAQ:APXT), which is set to merger with AvePoint soon. Let’s take a closer look at the story behind APXT stock.
AvePoint is a software player that is vital within the Microsoft (NASDAQ:MSFT) software ecosystem. In fact, AvePoint has won Microsoft’s “Partner of the Year” award on five separate occasions. Specifically, AvePoint helps companies migrate data to Microsoft 365.
Given how much market share Microsoft Office has had over the years, it’s not surprising that AvePoint has found a huge market helping firms protect, secure and transfer their assorted data from offline locations into Microsoft’s cloud offering.
AvePoint Isn’t Just Another SPAC
Our own Will Ashworth recently had a great article on AvePoint. In writing about the company, he initially sought to prove that AvePoint was just another startup going public too quickly. But, as he quickly realized, AvePoint actually has a ton of experience and credibility that sets it apart from most SPACs.
AvePoint has been in business now for 20 years, making it far more established than most of its software-as-a-service (SaaS) rivals. Additionally, the company is already up to $130 million in annual recurring revenues. That’s not a bad haul by any account. It especially stands out compared to the SPAC landscape, where many firms haven’t generated any meaningful sales yet.
Many investors, understandably, are writing off all SPACs after seeing some of the crashes in the electric vehicle (EV) space. However, AvePoint doesn’t deserve to be viewed in that same light.
So Why Isn’t AvePoint Soaring?
On the surface, APXT stocks looks like a slam dunk. So why are shares trading only marginally above the $10 SPAC offering price? For one, there’s the general SPAC malaise. By March, CNBC‘s SPAC index had fallen 20% off the highs, and there’s been little recovery since then.
The Securities and Exchange Commission (SEC) has already issued tougher standards around accounting for SPAC warrants. The warrants are a big sweetener in many SPAC deals. Thus, hampering them could hit the appeal of SPACs in general as compared to traditional initial public offerings (IPOs). Not stopping there, the SEC is eyeing further curbs on SPACs, such as limiting revenue projections in SPAC investor presentations.
In theory, this shouldn’t hurt existing SPACs. After all, the AvePoint deal is close to conclusion already. By the time the additional SEC standards take effect, AvePoint should already be on its own with its new ticker symbol and corporate entity. However, traders are currently viewing most SPACs as guilty by association, regardless of the underlying business or deal quality.
A longer-term risk is that AvePoint is potentially overly reliant on Microsoft’s success to drive its business. So far, that’s been a fine bet. Microsoft has been firing on all cylinders in recent years, which has been a strong tailwind for its key partners as well. However, if Microsoft’s offerings ever lose mass appeal, it’d be a negative for AvePoint.
To its credit, AvePoint shifted its business model once before from software license sales to SaaS, and might be able to adjust again as needed if the Microsoft relationship changes. However, investors will still view its Microsoft dependency as a potential risk factor.
APXT Stock Verdict
At least until the SPAC deal closes, there’s a floor of $10 on shares of APXT stock. That’s because, in a SPAC, an owner can redeem at par if they don’t like a deal. This creates a favorable short-term risk/reward as downside is only a buck per share, but upside could be considerably more if sentiment improves for SPACs and/or small growth stocks once again.
And, in the longer term, this is a credible and proven company. It’s not another fly-by-night SPAC by any means. AvePoint has more to accomplish in terms of generating strong cash flows and earnings. However, the revenue picture is already a good one, and the company is serving a broad customer need.
It’s not hard to see how AvePoint could be a big winner in coming years. The recent pullback in SPAC stocks is setting up an intriguing buying opportunity for APXT stock here.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
