AlphaRank SPAC Monitor – June 2020

June 23, 2020 – The current SPAC monitor should come with the warning, “too hot to handle”, given the substantial rally in special purpose acquisition companies over the past month.

I flagged the generational buying opportunity in SPACs back on March 26th, in which an investor could earn 5-10% annualized risk-free returns with significant upside optionality. My, how things have changed! In less than three months, the market for SPACs went from “raining gold” with a tremendous amount of attractive investments to a frothy market with relatively slim pickings.

After the recent market success of stocks such as DraftKings and Nikola, which were borne of blank-check companies, there has been a heightened interest in the SPAC market. Issues have been bid up, such that the average SPAC arbitrage yield currently stands at -0.2%, a steep decline from last month’s 2.6% yield. The Accelerate AlphaRank SPAC Index rallied 6.1% over the past month. The average SPAC has gone from trading at just a 0.3% premium to a stunning 4.5% premium to net asset value.

Perhaps the market is now catching on to the attractive embedded upside optionality in blank-check companies that have not yet announced a business combination. Of the 18 SPACs that have announced, however not closed a business combination, they are trading at an average premium to net asset value of 19.3%. The market is exuberant regarding SPACs that have recently announced deals:

• Opes Acquisition announced a merger with BurgerFi and now trades at a 56% premium
• ARYA Sciences Acquisition announced a merger with Immatics Biotechnologies and now trades at a 64% premium
• Forum Merger II announced a merger with Tattooed Chef and now trades at a 68% premium
• Tortoise Acquisition announced a merger with Hyliion and now trades at a 73% premium

The market is rewarding SPACs for announcing deals. This reward is the reason why we have focused our buying for the Accelerate Arbitrage Fund on the pre-deal SPACs issued in the first quarter of 2019. These are the blank-check companies with the highest likelihood of announcing a deal soon and therefore present the greatest near-term upside. Case in point, earlier this week, it was rumoured that Insurance Acquisition was in talks for a business combination with Shift Technologies, an online retailer for used cars. Insurance Acquisition, which went public in March 2019, rallied 22% on the Shift merger rumour.

 

Currently, there are 105 SPACs outstanding (up from 103 last month), with 6 newly issued and 4 having completed business combinations over the past month. The asset class now accounts for more than $33 billion in market value, growing 12.4% month-over-month.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.

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* AlphaRank is exclusively produced by Accelerate Financial Technologies Inc. (“Accelerate”). Visit AccelerateShares.com for more information.

Disclaimer: This research does not constitute investment, legal or tax advice. Data provided in this research should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information in this research is based on current market conditions and may fluctuate and change in the future. No representation or warranty, expressed or implied, is made on behalf of Accelerate as to the accuracy or completeness of the information contained herein. Accelerate does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed. Accelerate may have positions in securities mentioned. Past performance is not indicative of future results.