- We identify and break down for you SPACs that are capturing market share and making an impact.
- SPACs have thrived for the better part of the last eighteen months because it has filled a void for both investors and companies looking to raise capital.
- Early Stage Companies also benefit from SPAC deals as they have access to a large pool of capital, can accelerate the process of going public, and even provide forward-looking guidance
Each week we’ll identify and break down for you SPACs that are capturing market share and making an impact.
SPACs have thrived for the better part of the last eighteen months because it has filled a void for both investors and companies looking to raise capital. There has been a pent-up demand from retail investors, who have traditionally been excluded from participating in the early stage of innovative companies that have later turned into huge successes.
Early Stage Companies also benefit from SPAC deals as they have access to a large pool of capital, can accelerate the process of going public, and even provide forward-looking guidance (something that’s not possible with a traditional IPO) to potential investors. In today’s rundown, we’ll look at three sectors where SPACs have seen a huge success in raising capital and how they are shaping up for the next year.
Launching Into Orbit
With the dawn of the Space Age, the development of space technology was driven by the race for technical superiority and dominance between the USA and USSR. It got off to a rapid start, with the US launching satellites into space and astronauts onto the moon in just 15 years.
The high cost and long timeframe associated with funding space missions, in addition to decreasing government space budgets, resulted in a huge decline between 1970-2000. While public space projects were limited, private investment in the space appeared akin to the vacuum in which they operated, essentially void and with no sign of life. It wasn’t until 2002 that SpaceX and Elon Musk attempted to democratize space exploration for private firms.
But, it took another 17 years for Virgin Galactic to take a small step for space companies and a giant leap for SPACs. Space Tech firms saw how successful Virgin was at raising capital at scale for what was deemed risky even by Venture Capital standards and raced to take advantage. Space Companies that have gone public through SPACs have seen a cumulative valuation of close to $25 billion, indicating that the public markets have an unusual craving for risky bets.
‘Space’ tech companies can be broadly categorized into Launch Companies, Sensing Firms, and Supporting Infrastructure companies. Launch companies like Virgin have risen in popularity, primarily because investors believe that it will carry the bulk of the value in the industry. But remote sensing Space tech companies like AST SpaceMobile may be a better bet, especially because they bear very little development risk, have comparatively low capital requirements, and generate recurring revenues.
Hardware Space Infrastructure companies like Redwire will accelerate innovation across space components manufacturing, and Digital Space infrastructure companies like Arquit will push the boundaries of cybersecurity.
Space de-SPACs have a long way to go, with a majority of the customer acquisition and projects currently underway, but expect them to have a sensational year in 2022 as they continue to execute milestones.
Race to the Finish Line
EV de-SPACs have made the headlines for all the wrong reasons in the past few months. Electric Truck Maker Nikola was one of the first high profile deals that made SPACs popular (along with DraftKings and Virgin Galactic), but fraud allegations against founder Trevor Milton and lofty delivery projections that the company couldn’t fulfil led to one of the worst drops in the year (down 80% compared to listing price).
Several target companies have faced issues like the production challenges that plagued Lordstown Motors (Lordstown ultimately sold its factory to Foxconn in a contract manufacturing deal), and Workhorse’s highly anticipated multi-billion dollar contract with the US Postal service falling through.
While EV de-SPACs have struggled the most, even companies in other mobility segments have struggled after completing their deals. LiDAR companies Aeye, Ouster, Innoviz, and Luminar have all struggled in the weeks and months after their deal.
The decline in EV and mobility stocks doesn’t necessarily mean that the companies are doomed or that their business models aren’t sustainable. A majority of the EV and Mobility de-SPACs that have gone public are long-term bets on mass electrification, that will likely pay off over the next few years as governments mandate change.
Bank of America estimates that a 100% transition to EVs in major markets would require a $2.5 trillion investment over the next decade. Polestar’s recent $20 Billion SPAC merger with Gores Guggenheim shows that investors still have an appetite for high-quality EV de-SPACs. Furthermore, while mobility-focused target companies have struggled to deliver on lofty ambitions, EV charging-focused de-SPACs like EVgo and ChargePoint have fared much better, especially as the infrastructure has significantly grown just over the last two years.
There are nearly 120,000 charging ports in the US and 275,000 charging ports across the European Union, but a majority of the concentration remains in densely populated areas, indicating that there is plenty of room for growth in the future.
The EV Sector (especially depressed de-SPACs) will likely bounce back over the next year as production issues subside and the industry sees consolidation (along the lines of a Lordstown-Foxconn style deal). While the market may have moved on from EV de-SPACs, there is substantial value in some of the companies that have taken a beating this year.
Technology was a competitive advantage for financial services providers in the past, but they are now crucial to a bank’s very existence. Banks and Financial Institutions that rely on legacy technologies and on-premise servers are under a threat of becoming the Blockbuster or Kodak over the next decade. Financial Technology firms range from Stockbroking to Neo Banks and even Decentralised Finance.
Now more than ever, FinTech firms that are playing the role of a disruptor are looking towards SPACs to fund capital-intensive growth. Over 15 SPACs have merged with companies in FinTech, generating over $60 Billion in the process. Personal Finance company SoFi, which has considered an IPO route for years, closed an $8.65 billion deal and set the pace for the rest of the year.
Cryptocurrency Platforms like Bakkt and eToro have sought out SPACs to fuel the massive demand and StableCoin issuer Circle is expanding on a large scale ahead of its deal. Payment platforms like Paya and Payoneer have done very well in the year as they look to reinvent cross-border payments. Neo Banks like Dave are now directly targeting Legacy Banks by eliminating many of the features that customers can’t stand, like overdraft fees and ATM charges.
Regulatory Changes that have slowed down the broader market have continued to benefit FinTech de-SPACs, as the regulatory scrutiny improves the quality of deals and information disclosed. Despite a majority of FinTech firms going through a SPAC route, some of the largest firms like stockbroker RobinHood and Cryptocurrency Exchange CoinBase bucked the trend and instead decided to pursue a traditional IPO.
While 2021 was a blockbuster year for FinTech SPACs and Target Companies, the next year make look more subdued, with a majority of FinTech targets being international firms or broadly based in the Cryptocurrency space.
Originally Posted on November 22, 2021 – Three SPAC Sectors to Look at in 2022
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