In recent weeks, Apex Technology Acquisition (NASDAQ:APXT) stock has fallen back toward its $10-per-share offering price. SPAC (special purpose acquisition company) stocks like this one have sold off in general. Once one of the hottest investment trends out there, investors have been more skittish as of late when it comes to this space. But, in the case of APXT stock, the recent selloff looks overdone.
How so? Based on the details of its pending merger with data migration play AvePoint, it’s clear that, at today’s prices (around $11 per share), there’s room for big upside, relative to other SPAC plays. With its longstanding partnership with a major cloud-based software company, there’s big potential for it to build on its recent success (30%+ annualized growth).
Granted, this may not be a stock that takes off in a matter of months. The story behind this company’s merger partner may take a while to play out. But, once it does, shares not only have room to bounce back toward their all-time highs ($17.90 per share) but an eventual move to prices well above $20 per share may be attainable as well.
So, what’s the play? As fading interest in SPAC stocks puts downward pressure on shares, now’s the time to enter a position.
APXT Stock and the Upcoming AvePoint Merger
So, what’s the story behind AvePoint, Apex Technology’s merger partner? As I said above, this acquisition target is a data-migration solutions provider. That is, its SaaS (Software-as-a-Service) platform helps businesses migrate their existing data from legacy systems, over to new systems. Mainly, to its strategic partner’s cloud-based platforms.
With this partnership alone, this relatively small company ($148 million in 2020 revenue) has significant room to run. As more companies pivot away from on-premise platforms and toward cloud-based ones, this company is tapping into a massive total addressable market (TAM).
According to the Apex/AvePoint merger presentation, the TAM for this marketplace is projected to be $33 billion per year by 2022. With such a massive market, the company’s 30%+ annualized growth will likely continue in the coming years.
In short, Apex has found a great merger candidate with this up-and-coming data migration name. So, why have investors sold this off ahead of the deal close? Chalk it up to the overall fallout in SPAC stock prices. With so many deals underwhelming, it’s no shock they’ve started to write off this one.
That’s been bad news for investors who got into APXT stock while it traded at a substantial premium. But now, it’s trading not that far above its offering price. Given the terms of this deal, this is a more than appealing long-term entry point.
The Numbers Make Sense
A few months back, valuation concerns with SPAC stocks got put on the backburner. But, as of late, investors have been paying closer attention and reassessing prices. Based on the numbers, does the deal look favorable for those buying APXT stock today? Based on what’s presented in the transaction summary, yes.
How so? At $11 per share, the combined company will have a $2.19 billion market capitalization. Subtract post-deal cash of $252 million, and its implied enterprise value stands at around $1.94 billion. With $193 million in projected revenue for this year, the deal’s priced today at around 10x forward sales. And, based on 2022 revenue projections ($257 million), it’s currently selling for around 7.5x next year’s sales.
Now, admittedly, that’s by no means a “cheap valuation.” But, compared to the scores of other SaaS plays out there, selling for 15x, 20x, even 30x forward sales, this is a more-than-reasonable valuation. Not only that, with this company’s vendor status with such a dominant player in the cloud-based software space, the chances of this company living up to expectations are substantial.
Simply put, investors have unfairly thrown out this strong SPAC opportunity along with the many pending blank-check merger plays with much weaker prospects. That may not necessarily mean APXT stock is due for a sudden rebound. But, with more of a chance for its valuation to expand rather than contract, this may be just the ticket.
Bottom Line: An Attractive Long-Term Buy
Its prospects may be strong. But, of course, there’s no guarantee it’ll go off without a hitch. AvePoint’s high customer concentration could be a risk. More generally, a continued pullback in SPAC stock prices could push this down to the single digits.
Yet, among the many pending SPAC merger plays out there, this is one of the more interesting opportunities. Reasonably priced, with growth factors firmly on its side, it’s hard to see this transaction not paying off for existing shareholders.
Bottom line: At $11 per share, consider APXT stock an attractive buying opportunity ahead of the AvePoint merger deal close.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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