August 25, 2020 – Off the back of a record month for SPAC IPOs in July, new blank check issuance remains brisk in August.
Month-to-date, nearly $8 billion has been raised in 23 SPACs. The average blank check IPO in August raised $340 million, with a range of $100 million for the smallest and $1.3 billion for the largest. The total market cap of the asset class increased from $45 billion spread over 120 SPACs to $58 billion in 148 blank checks. Judging by the rapid pace of S-1 filings, and the paperwork needed to conduct an IPO, we expect rapid growth in the asset class to continue in the near-term.
As SPAC IPO issuance remains red hot, share prices have turned cold. The Accelerate AlphaRank SPAC Index is down -2.1% over the past month, giving up some gains from July’s 4% rally. Nearly 50% of the blank check IPOs in August broke price and are now trading at discounts to their net asset value, presenting attractive investment opportunities for arbitrageurs.
While some shareholders may be upset regarding falling share prices, arbitrageurs should rejoice given that lower prices bring higher yields. The average SPAC yield improved from -2% last month into barely positive territory this month. After being a net seller of SPACs in the previous month, the Accelerate Arbitrage Fund (TSX: ARB) is back into buying mode, and now has positions in 52 SPACs. ARB remains the easiest way to attain exposure to a diversified portfolio of SPACs.
Over the past month, 12 SPAC have announced business combinations. Of those 12 deals, 11 of the SPACs have traded down an average of -5%. Either the market was too frothy last month, or investors have lost their eagerness for post-deal blank checks in all sectors but one. Unsurprisingly, following the speculative fervour in the shares of Tesla and Nikola, SPAC investors remain hot for anything electric vehicle related. When blank check DiamondPeak Holdings (Disclosure: Long in ARB) announced a deal with EV-manufacturer Lordstown Motors, speculators piled into the stock, pushing its price up 35% over the past month. SPAC investor sentiment seems to echo the former CalPERS chief investment officer, “we need electric vehicle deals, we need more of them, and we need them now.”
The Accelerate AlphaRank SPAC Monitor details various metrics on the current opportunity set while offering details on every individual SPAC currently outstanding. The Accelerate AlphaRank SPAC Effective Yield tracks the average arbitrage yield offered in the market. The Accelerate AlphaRank SPAC Index tracks the price return of the SPAC universe.
* AlphaRank is exclusively produced by Accelerate Financial Technologies Inc. (“Accelerate”). The Accelerate Arbitrage Fund may hold a number of securities discussed in this research. Visit AccelerateShares.com for more information.