The Decline of SPACs: An Opportunity for Investors


The SPAC bubble has burst, marking the end of a three-month period of immense popularity in the beginning of 2021. Investor appetite for special purpose acquisition companies has significantly dwindled, resulting in a slowdown of new issuances. SPACs still on the hunt for merger partners have been particularly impacted, and those that have already completed mergers have been hit even harder.

However, with every blowup comes an opportunity. Now is the time for investors to sift through the aftermath and identify the high-quality SPAC sponsors that are still actively seeking acquisitions or have pending deals.

Make no mistake, the damage is substantial. The Defiance Next Gen SPAC Derived exchange-traded fund (SPAK), which comprises over 230 SPACs and SPAC-merged companies, has experienced a decline of over 32% from its 52-week high. Additionally, approximately a quarter of the stocks it holds have plummeted by 50% from their recent peaks. To add to the woes, more than half of the companies are trading below $10, the typical pricing for most SPACs. Unsurprisingly, this has caused a drought in new issuanes – why would investors pay $10 for a new SPAC when they can purchase an existing one for a lower price?

However, not all SPACs are facing rejection. Bill Ackman’s Pershing Square Tontine Holdings (PSTH) is still actively seeking a merger partner. Ackman has tantalizingly suggested that an announcement regarding a deal with an “iconic” company could be made within weeks. Unlike its struggling counterparts, this SPAC has only dropped 27% from its 52-week high and is currently trading well above its $20 IPO price, at nearly $25 per share.

In conclusion, while the SPAC bubble may have burst, investors should view this decline as an opportunity to carefully select the SPAC sponsors that show promise. By examining the wreckage left behind, astute investors can identify the potential winners amidst the chaos.

Fisker (FSR): An Electric-vehicle Start-up Worth Considering

Fisker (FSR) completed its merger with Spartan Acquisition in October, making it a compelling option for investors. Despite the fact that stocks in electric-vehicle startups have struggled as SPAC performers, Fisker’s position as a new player in the market is far from promising. With its stock closing at $10.50 on Friday, the company has seen a significant drop of approximately 67% from its 52-week high of $31.96.

Considering Fisker’s lack of sales and the delayed release of its first product, an electric SUV slated for late 2022, the future remains uncertain. However, the company does possess substantial cash reserves and boasts partnerships with renowned auto-parts supplier Magna International (MGA). Investors can anticipate Fisker’s earnings report on May 17, and with positive news, a potential surge in share prices may follow.

Porch Group (PRCH): A Solid Contender in the Home-industry Software Sector

Porch Group (PRCH), the leading provider of home-industry software, presents a noteworthy opportunity. Despite experiencing a decline of approximately 39% from its February 52-week high, the stock currently stands at $14.98. What sets Porch apart from other SPACs is its actual sales performance. In the last reported quarter of 2020, the company generated $19.5 million in revenue, and investors will receive an update when earnings are reported on May 17.

Porch’s stock valuation is approximately seven times the estimated 2021 sales, which may seem high. However, this figure represents a discount relative to other major software companies in the market. Furthermore, the booming home sales industry is expected to provide a favorable tailwind for Porch’s growth. Notably, Wall Street analysts hold a positive outlook on the stock, with all four analysts covering it giving it a “Buy” rating. The average price target of approximately $26, over 70% higher than the previous close, further supports this sentiment.

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