Against another weak performance on Wall Street, special purpose acquisition company (SPAC) HPX Corp (NYSEAMERICAN:HPX) enlivened the proceedings on the midweek session with a 200% debut before charging close to 400% up in the afternoon hours. The blank-check firm received shareholder approval to merge with Brazil’s Emergencia Participacoes, a leading environmental and industrial service provider. Significantly, HPX stock underscores brewing enthusiasm for SPACs and initial public offerings (IPOs).
According to MarketScreener, the vast majority of HPX shareholders voted to approve the transaction. Further, the business combination is scheduled to close on March 3. Following the post-closing process, the entity will change its name to Ambipar Emergency Response. On March 6, Ambipar Emergency shares and warrants will trade on the NYSE American exchange. The ticker symbols will be AMBI and AMBIWS, respectively.
To clarify, Emergencia represents a division under the Ambipar Group. Founded in 2008, Emergencia provides environmental, emergency response, and industrial field services in its home country. As well, it features a presence in 16 countries in Latin America, North America, Europe, Africa and Antarctica.
Per Seeking Alpha, the SPAC deal assigns an enterprise value of around $581 million for the soon-to-be Ambipar Emergency.
Soaring HPX Stock Underlies Enthusiasm for SPACs and IPOs
Although any time a security flies higher offers smiles for participating stakeholders, the dramatic rise of HPX stock distinguishes itself. Primarily, it’s occurring amid a legitimately dour environment for the equities market. As InvestorPlace contributor Dana Blankenhorn pointed out, the latest Personal Consumption Expenditures (PCE) index revealed higher-than-expected inflation. By logical deduction, the Federal Reserve may raise the benchmark interest rate to combat this unfortunate trend.
Usually, such a framework would not be positive for IPOs, particularly a SPAC-based debut like HPX stock. Generally speaking, public market debutantes don’t offer dividends. Further, they’re unlikely to do so in the foreseeable future. Therefore, IPOs tend to thrive on positive risk-on sentiment. In contrast, higher interest rates raise borrowing costs, leading to risk-off sentiment.
Nevertheless, HPX stock jumped above normal expectations. Enticingly for IPO participants, it’s not the only one to do so. A few weeks ago, lunar access service provider Intuitive Machines (NASDAQ:LUNR) benefitted handsomely from a blistering introduction. Like Ambipar, Intuitive combined with a SPAC.
At the time, it apparently didn’t matter to retail investors that the SPAC stakeholders opted to redeem $279.8 million worth of LUNR shares prior to its transaction close. With such indifference to an obvious headwind, circumstances from one angle bode well for HPX stock.
Why It Matters
Still, investors should exercise extreme caution with HPX stock, irrespective of the rabid enthusiasm of others. Using Intuitive as a cautionary tale, it’s true that LUNR hit a closing peak of nearly $82 on Feb. 22. Against the underlying SPAC’s initial offering price of $10, LUNR gained more than eight-fold.
However, in the trailing five days, LUNR dropped almost 81% in equity value. At a time-of-writing price of $18.15, LUNR gained “only” 81.5%. It’s up significantly from $10 but represents a far cry from the 720% return that early-bird investors enjoyed. Obviously, those that got in late suffered devastating consequences. Thus, caution should be key for HPX stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
