Heading into the last week of 2021, the S&P 500 is up this year by 26%. It’s been an impressive performance, one that has prompted a wave of new entries to the public trading markets. Leaving aside traditional IPOs for now, we’ll take a look at SPAC transactions – the ‘special purpose acquisition companies’ that offer an alternate route for companies’ public debut.
So far this year, we’ve seen a record number of SPAC transactions – over 600, which have raised an aggregate of more than $144 billion in fresh capital. On a word of caution, however, 62% of that total came in the first quarter of the year. The drop-off is due to increased scrutiny from the SEC, which has been moving to a tougher posture on ‘rules around how underwriters, boards of directors and sponsors of SPAC structure fees, issue projections and disclose conflicts.’ In short, the regulators want to mitigate the risks inherent in SPACs.
Those risks are real; some two-thirds or more of SPAC combos lose share value – and investor money – in their first year of public trading. Chief among these reasons is the ability of a SPAC’s early investors to cash out their shares once they learn the shell company’s merger target. These redemptions have been known to reduce the merger transaction’s proceeds by as much as 90%.
Despite the increased regulatory scrutiny, we’re still seeing SPAC transactions move forward, with billions of dollars involved. We’ve used the TipRanks platform to take a look at two SPAC players that may be slipping ‘under the radar,’ and yet still offer investors more than 60% upside potential, according to some Wall Street analysts.
Spartan Acquisition Corporation III (SPAQ)
The first company we’ll look at is Spartan Acquisition Corporation III, a SPAC with a $683 million market cap and a target in the European electric vehicle (EV) charging market. EVs are widely considered the future of the automotive industry, and are prompting a great deal of investor interest now, as the sector is beginning to expand. Spartan is aiming at the pan-European EV charging market, and planning a merger with Allego Holding.
Allego holds a growing position in the European EV chargepoint market, with more than 26,000 charging stations in 12,000 public and private installations across 12 countries. The company’s work backlog – a key measure of future profitability – includes more than 500 secured premium sites, and Allego boasts a ‘substantial recurring user base.’
In the runup to the business combination, Allego and SPAQ have been securing funding and partnerships. One major institutional investment has come from Fisker (FSR), a US-based battery EV (BEV) manufacturer. Fisker is no stranger to SPAC combos, having gone public through one last year. The company has invested $10 million into the upcoming SPAQ-Allego merger.
In other news, Allego has entered a partnership with the major Japanese automaker Nissan, for more than 600 charge points across 16 European countries. The move gives Nissan a foothold in the European EV scene, and gives Allego access to Nissan’s popular EV models.
The coming merger is expected to raise over $700 million for the combined company, which will have a pro forma value estimated at $3.14 billion.
In coverage for Benchmark, analyst Subash Chandra takes a bullish outlook, noting that “Allego generates significant revenues (~$100mm ‘21E) from owned and operated fast-charging stations across Europe and service contracts with customers such as Carrefours, REWE Nord, Geant Casino, Shell and Nissan.”
Chandra goes on to write, “Europe is the second largest EV market after China and multiples larger than the US. The market share of battery EVs (BEV) and plug-in hybrid EVs (PHEV) in September was 23% compared to 4% in the US. European EV growth could top 45% CAGR over next 5 years.”
These comments support a Buy rating for SPAQ, with a $16 price target suggesting a 62% upside potential for the coming year. (To watch Chandra’s track record, click here.)
Overall, the Street is also taking a sanguine attitude toward this merger. Spartan has three reviews on record, and all are positive, for a Strong Buy consensus rating, while the average price target matches Chandra’s $16 objective. (See Spartan’s stock analysis at TipRanks.)
Highland Transcend Partners I (HTPA)
The second company we’re looking at is Highland Transcend Partners I, a SPAC aiming at the e-commerce sector. The company, which has a market cap of $372 million, is targeting Packable for its merger. Packable, the parent/holding company of Pharmapacks, is a major third-party seller on Amazon’s (AMZN) marketplace.
Packable is a leader in e-commerce logistics, offering scalable solutions for inventory and product management to data-driven marketing and fulfilment. The company’s propriety software and data platform offers hard-won expertise in distribution and customer service.
In recent months, Packable – and its Pharmapacks subsidiary – have been raising funds in preparation for the SPAC transaction. Pharmapacks raised over $250 million in private funding from the Carlyle Group equity firm, and is now valued near $1.1. billion. Packable, in a move to power international expansion, raised $180 million from multiple investors, including Fidelity and Lugard Road Capital. Packable is offering revenue guidance for 2021, in the neighborhood of $456 million, which will be a 22% increase from last year, and is predicting average annual growth of 38% through 2024 – with sales that year projected at $1.3 billion.
The upcoming SPAC merger will create a combined entity with an estimated value near $1.55 billion. Packable expects to gain some $434 million gross capital proceeds from the business combination.
Benchmark’s 5-star analyst Daniel Kurnos is looking forward to this SPAC merger, and sees Packable as a future leader in its niche. He writes of the company, “We think Packable may be one of the most exciting ecom opportunities in recent history for several reasons, including: 1) Packable enables third party (3P) sales across eight marketplaces (is Amazon’s #1 NA 3P seller) for 12 of the top 14 CPG companies; 2) Packable is very likely the only at-scale distribution network that does not rely exclusively on Amazon’s FBA for fulfillment, with significant revenue and margin benefits coming from California and Texas fulfillment center build-outs; 3) Packable is directly integrated with their CPG and digitally native brand (DNB) partners, giving them access to one of the largest data lakes outside of Amazon and Walmart; 4) Packable has never lost an enterprise customer…” (To watch Kurnos’ track record, click here.)
In light of these comments, Kurnos gives Highland, Packable’s proposed merger partner, a Buy rating and sets a price target of $18 on the stock, suggesting a one-year upside of 81%. Kurnos’ is the only review on record for this stock, which is currently priced at $9.92. (See Highland’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.