Weekly SPAC Warrant Chronicles

This week was one for the ages, the dark ages, but the ages nonetheless. A brutal bloodbath took over the bulk of our week and showed some weakness that we had not seen since roughly early October. This was not caused by a singular event but rather a series of factors all rolled into the outcome. Some of those factors were the retail pursuit to the “Wall Street Bets” trades. Some was the rising yields. The looming elephant in the room was Churchill Capital IV, (CCIV and CCIV.WS). While the deal did in fact get announced as can be found in our details pages for subscribers, the deal was revealed in a falling market environment and would have resulted in tepid responses on the best of news. The “best news” scenario was not the case and the stock and warrant both plummeted for the course of the following 2 days. The performance of this particular announcement had a rarely discussed psychological threshold. The “daydream effect” if you will. The “daydream” that had inspired so many people to seek their fortune on the Unicorn Rumor of Lucid Motors. Unfortunately many of those newcomers had bought in to the story far too late and the drop from 60-40 was brutal when the expectation was that it would reach the moon (immediately). The cascade that followed was expected, not because of the details of the deal, but the actual psychology of lost expectations and the retirement plan all wrapped into a singular event. I do firmly believe that the run for CCIV is not over at all and will discuss that further as we approach later in the Spring. Maybe sooner as more people discover the absence of large EV targets remaining and a few that have never gotten the positive movement that is associated with the announcement. Lucid does maintain a great advantage going into the merger for Q2 but in my opinion, is joined by several recent deals that will see large upside when the market realizes what they have. SOAC, VCVC, GRSV, FGNA, are also among the undervalued post announcement deals. Lucid Motors will be a powerhouse, of this we have no doubts and are already seeing the strength return to CCIV in the aftermarket on Friday. If that price momentum holds, then we could see a great week. 

For those positioned to take advantage of the subsequent carnage seen in the past week, it was an epic chance to really buy some very attractive warrants at UNBELIEVABLE prices. We also saw positions that required averaging on the lows. While we, along with the entire asset class saw some losses this week; the nature of warrants with little exposure to expiring due to the nature of SPACs will reward us with the whiplash we will see on the return to the upside. Some holdings might have just gotten put on an extra couple week hold just due to the nature of rising and falling markets, but we are very confident with the SPAC portfolio holdings. 

As you can see on the right of this in the table, there were a litany of new S-1 Filings for SPACs (week of Feb 22-26, 2021) and the pace continues. Any discussion about too many or a potential bubble has to be mitigated by very professional teams looking for combinations and the reality that they have had to engage in the discussions with the underwriters and themselves prior to coming to market. The enthusiasm exists in each of their independent niches and while there is good deal of overlap in the pre-eminent industries of the day. There is also a growing focus that expands outside of those hot sectors and holds a wealth of potential. Emerging market environments coupled with warrants are exciting, Artificial Intelligence, Machine Learning, entire transformative events that had not been expected to occur for another decade are upon us. Guess what? TONS of these are found with warrants and we are seeing more and more offerings that are coming to market. Contrary to the discussions of too many, I would argue that the sheer magnitude of the global changes coming will be the drivers for mergers and acquisitions that will be sourced from earlier stages of the VC process. 

How would an earlier stage company benefit us as an investment of this scale? Simply the new paradigm will find many of the later stage and already producing entities with a healthy debt load and aging technology compared to the groups focused on overtaking those in their respective competitive environments. The access to capital markets that is achieved in the reverse merger process can truly take a brilliant, disruptive tech and make it global with the absence of the same debt to accomplish the task and reward shareholders and warrant holders.

While I discuss the favorites and least favorites this week in the Portfolio Review , the Announcements made in the last week are incredibly undervalued as a whole. Each of them with compelling stories, earnings potential and disruptive technology are poised to make a rapid ascent as we approach those Shareholder meetings. 

We will see what the week coming up has in store, but are happy to be done with February and moving on to Spring. The overwhelming number of offerings should serve as a guide to what the insiders think is possible and as we always say, is likely that in the pursuit of 1 merger that the second and third place candidates might offer a very viable return or technology and the due diligence has already been conducted. The expectation is for faster completions of deals which could catch some investors unaware when the target industry of the SPAC is not accurately depicted. Many examples exist where the target acquisition was entirely different than the declared intent and as I scan the large number of healthcare related offerings it makes me wonder if some of those are in fact going to present us with unexpected and great twists that are reminiscent of the Big Rock Partners (BRPA, BRPAW) trade.

Good Luck in the coming days and I will see our subscribers to the SPAC Warrant INDEX next on the Portfolio Review.