Research from Water Tower Research, Water Tower Research

Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

Equity Research Firm

Thematic (Sector/Industry)

Multiple Countries / Thematic (Sector/Industry)

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>Short on IPOs, short on time to get the job done.&nbsp;It has taken 30 days, but we do have two new SPAC IPOs to report this week. Acri Capital Acquisition Corp. (ACACU) was priced on June 10. The technology-focused SPAC raised $86.25 million in IPO proceeds, while sector-agnostic SPAC Feutune Light Acquisition Corp. (FLFVU) was priced on June 16 raising $85 million. One observation to make is that there has been a noticeable shortening of the time frame given to SPACs to complete mergers. The one-time typical two-year time frames have halved, albeit with the option to extend. For ACACU and FLFVU, barring extensions, the deadlines mandated are just nine months away.</li>
<li>Deal activity.&nbsp;The past week has been busier on the deal front, with five new IBCs announced, bringing the total to five for the month. None of these deals is particularly sizable, ranging from $110 million to $683 million. There have also been six completed de-SPACings so far in June. Redemption rates continue to average in the 80% plus range. As we highlighted in last week’s SPAC Talk, the best investment strategy in SPAC land currently is pre-merger SPAC arbitrage. As long as that continues to be the case, redemptions are likely to remain at a high level.</li>
<li>Going concern warnings.&nbsp;With de-SPAC share prices having fallen out of bed for the best part of the past 12 months, you might have thought de-SPACs were facing Armageddon. Well, this week saw the first financial casualty of the post SPAC/de-SPAC boom era with commercial EV firm Electric Last Mile Solutions (ELMS) filing for bankruptcy. Is this a harbinger of things to come as US rates shoot up? Our SPAC Talk Focus considers the proliferation of going concern statements that have been issued in recent months.</li>
</ul>
<h2>SPAC STATISTICS</h2>
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<h2>SPAC/DE-SPAC RETURNS</h2>
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<h2>SPAC TALK FOCUS</h2>
<h2>From Gung-Ho to Oh No as De-SPACs Hit a Reality Bump</h2>
<p>The world is a very different place for de-SPACs than it was a year ago. Investors then could not get enough of them, wooed by gung-ho projections promising years of rapid growth with grand profit targets down the road. But the fuel that drove the SPAC/De-SPAC boom in 2020 and 2021 has been replaced by warnings of possible bankruptcies in a harsh economic environment in which inflation has reared its ugly head again after decades of being subdued. Indeed, the first casualty of the post-de-SPAC boom era has just been claimed when Electric Last Mile Solutions, Inc. (ELMS), a pure-play commercial electric vehicle company, de-SPACed in June 2021, filed for bankruptcy under Chapter 7 on June 14, days before its first anniversary as a publicly traded company.</p>
<p>But could this be just the tip of the iceberg? Possibly, as there has been a proliferation of going concern or liquidity warnings issued by de-SPACs in recent months. A going concern warning tends to be issued by a company and/or its auditors when they believe that within 12 months from the date of the report/filing, there is substantial doubt over the company’s ability to meet its financial obligations and covenant conditions and will be compelled to scale back or cease operations.</p>
<p>We count 22 companies from our database of companies de-SPACed since the start of 2021, including ELMS, that have issued going concern or liquidity warnings in their latest filings. This represents 9% of the 245 de-SPACs currently included in our universe. The number of going concern warnings cited from accounting analytics research firm&nbsp;Audit Analytics&nbsp;is at least 25 companies including companies de-SPACed since the start of the SPAC/De-SPAC boom in 2020.</p>
<p>Our tally only includes de-SPACs that have issued statements of a determination of substantial doubt about the de-SPAC’s ability to continue as a going concern. As Figure 7 highlights, these companies have underperformed the overall universe of the poorly performing de-SPACs completed since the start of 2021.</p>
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<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Robert Sassoon, who is the writer of this report, covers the Emerging Growth &amp; Special Situations sector for WTR. Mr. Sassoon and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

Short on IPOs, short on time to get the job done.&nbsp;It has taken 30 days, but we do have two new SPAC IPOs to report this week. Acri Capital Acquisition Corp. (ACACU) was priced on June 10. The technology-focused SPAC raised $86.25 million in IPO proceeds, while sector-agnostic SPAC Feutune Light Acquisition Corp. (FLFVU) was priced on June 16 raising $85 million. One observation to make is that there has been a noticeable shortening of the time frame given to SPACs to complete mergers. The one-time typical two-year time frames have halved, albeit with the option to extend. For ACACU and FLFVU, barring extensions, the deadlines mandated are just nine months away.
Deal activity.&nbsp;The past week has been busier on the deal front, with five new IBCs announced, bringing the total to five for the month. None of these deals is particularly sizable, ranging from $110 million to $683 million. There have also been six completed de-SPACings so far in June. Redemption rates continue to average in the 80% plus range. As we highlighted in last week’s SPAC Talk, the best investment strategy in SPAC land currently is pre-merger SPAC arbitrage. As long as that continues to be the case, redemptions are likely to remain at a high level.
Going concern warnings.&nbsp;With de-SPAC share prices having fallen out of bed for the best part of the past 12 months, you might have thought de-SPACs were facing Armageddon. Well, this week saw the first financial casualty of the post SPAC/de-SPAC boom era with commercial EV firm Electric Last Mile Solutions (ELMS) filing for bankruptcy. Is this a harbinger of things to come as US rates shoot up? Our SPAC Talk Focus considers the proliferation of going concern statements that have been issued in recent months.

SPAC STATISTICS


SPAC/DE-SPAC RETURNS




SPAC TALK FOCUS
From Gung-Ho to Oh No as De-SPACs Hit a Reality Bump
The world is a very different place for de-SPACs than it was a year ago. Investors then could not get enough of them, wooed by gung-ho projections promising years of rapid growth with grand profit targets down the road. But the fuel that drove the SPAC/De-SPAC boom in 2020 and 2021 has been replaced by warnings of possible bankruptcies in a harsh economic environment in which inflation has reared its ugly head again after decades of being subdued. Indeed, the first casualty of the post-de-SPAC boom era has just been claimed when Electric Last Mile Solutions, Inc. (ELMS), a pure-play commercial electric vehicle company, de-SPACed in June 2021, filed for bankruptcy under Chapter 7 on June 14, days before its first anniversary as a publicly traded company.
But could this be just the tip of the iceberg? Possibly, as there has been a proliferation of going concern or liquidity warnings issued by de-SPACs in recent months. A going concern warning tends to be issued by a company and/or its auditors when they believe that within 12 months from the date of the report/filing, there is substantial doubt over the company’s ability to meet its financial obligations and covenant conditions and will be compelled to scale back or cease operations.
We count 22 companies from our database of companies de-SPACed since the start of 2021, including ELMS, that have issued going concern or liquidity warnings in their latest filings. This represents 9% of the 245 de-SPACs currently included in our universe. The number of going concern warnings cited from accounting analytics research firm&nbsp;Audit Analytics&nbsp;is at least 25 companies including companies de-SPACed since the start of the SPAC/De-SPAC boom in 2020.
Our tally only includes de-SPACs that have issued statements of a determination of substantial doubt about the de-SPAC’s ability to continue as a going concern. As Figure 7 highlights, these companies have underperformed the overall universe of the poorly performing de-SPACs completed since the start of 2021.

DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Robert Sassoon, who is the writer of this report, covers the Emerging Growth &amp; Special Situations sector for WTR. Mr. Sassoon and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Virgin Group Acquisition Corp. II (VGII US)

SPAC Talk: Going, Going, Gone?