July 23, 2020 – Summer 2020 is turning out to be a coming of age celebration for special purpose acquisition companies.
Specifically, we can point to the record-setting, $4 billion initial public offering of Pershing Square Tontine Holdings on July 22, 2020, as a seminal event. This massive SPAC IPO blew the previous record for largest blank check offering out of the water. It also added a stamp of approval to the asset class given Pershing Square Tontine’s Chairman and CEO, Bill Ackman, is one of the most revered investors active today.
Interest in SPAC investing continues to follow performance. The Accelerate AlphaRank SPAC Index gained 4% over the past month, and the 2-3% yields observed in the first quarter have disappeared. Yields have turned negative as the average blank check company now trades at a 6.8% premium to its net asset value.
The rally in SPAC prices indicates that the market is now valuing upside optionality, meaning that investors are willing to pay up for SPAC exposure given the explosive upside share price performance occurring after certain SPACs announce deals. The market continues to reward transactions announced in the space:
- Spartan Energy Acquisition announced a merger with electric car company Fisker and now trades at a 34% premium to its net asset value.
- Landcadia Holdings II inked a business combination with Golden Nugget Online Gaming and its shares traded up to a 36% premium to its NAV.
- Fortress Value Acquisition signed a definitive agreement with rare earth producer MP Materials, which sent its stock up to a 49% premium to its NAV.
Prior to announcing the above transactions, these SPACs traded at discounts to their underlying net asset values. However, the market has caught on to the fact that share prices rally when deals are announced and the “easy money”, in the form of discounted prices, is now harder to find.
Given the voracious demand for SPACs, as indicated by widespread trading premiums, we expect new SPAC issuance to continue its record-breaking run.
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.
