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

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Thematic (Sector/Industry)

Multiple Countries / Thematic (Sector/Industry)

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>‘SPAC King’ joins the liquidation line.&nbsp;There were four new liquidation announcements, all made on September 20 and to be completed next month. Two of the SPACs that have been consigned to liquidation are of particular interest and carry symbolic significance as they are sponsored by Chamath Palihapitiya, dubbed the ‘SPAC King’ by the media in recognition of his status as one of the most prolific SPAC sponsors who helped fuel the SPAC boom. His intention to liquidate two of his SPACs presumes some disenchantment with SPAC assets that he had so enthusiastically promoted. Our SPAC Talk Focus this week compares how Chamath’s SPAC investments have performed relative to other leading serial SPAC sponsors.</li>
<li>New deals continue to flow.&nbsp;Although the SPAC IPO market continues to operate on a slow-drip basis, with one IPO priced this week doubling the IPO count for the month to date, new IBC deal flow has been flowing more freely. Four more deals were announced in the past week, bringing the total for the month so far to 13 with an aggregate IBC value of $8.9 billion or an average of $684 million per IBC, which is up from $539 million in August, albeit below the year’s average of $789 million (we must correct a misprint in last week’s SPAC Talk, which cited 13, when it was only nine). One piece of good news on the deal front is that there have been no deal cancelations since the end of August.</li>
<li>Redemption rates are down in September.&nbsp;We have also seen the completion of six de-SPACings in the month to date, including the much-awaited video sharing platform Rumble Inc. (NASDAQ: RUM). In fact, RUM shattered the mold of de-SPACs by reporting a spectacularly low redemption rate of 0.1%. Another de-SPAC completed this month, a China-based hologram technology company, also came in with a below-trend redemption rate of 38%. As a result of these outliers, the average for the month stands at 60%, well below the 80%+ range we’ve been used to this year.</li>
</ul>
<h2>SPAC STATISTICS</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/632/original/image_80428160521663965243742.png?1663965246" class="editor-image img-responsive" data-smartkarma-image-id="299632"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/633/original/image_12063503631663965258556.png?1663965258" class="editor-image img-responsive" data-smartkarma-image-id="299633"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/634/original/image_93029430341663965269846.png?1663965270" class="editor-image img-responsive" data-smartkarma-image-id="299634"></figure>
<div class="content-remarks">
<p>Source: WTR</p>
</div>
<h2>SPAC HAPPENINGS IN SEPTEMBER 2022</h2>
<p>Figure 1: IPO Pricings/Completed Liquidations</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/635/original/image_2849065851663965297483.png?1663965298" class="editor-image img-responsive" data-smartkarma-image-id="299635"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 2: IBC Announcements/Terminations</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/636/original/image_73122660161663965319738.png?1663965321" class="editor-image img-responsive" data-smartkarma-image-id="299636"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 3: De-SPACings</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/637/original/image_59077694071663965342151.png?1663965343" class="editor-image img-responsive" data-smartkarma-image-id="299637"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<h2>SPAC/DE-SPAC RETURNS</h2>
<p>Figure 4: Live IBCs (Initial Business Combinations)—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/638/original/image_70244236281663965371459.png?1663965372" class="editor-image img-responsive" data-smartkarma-image-id="299638"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 5: Top 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/639/original/image_62953943291663965393484.png?1663965395" class="editor-image img-responsive" data-smartkarma-image-id="299639"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 6: Bottom 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/640/original/image_583607856101663965423076.png?1663965424" class="editor-image img-responsive" data-smartkarma-image-id="299640"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 7: De-SPACs—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/641/original/image_947551581111663965454927.png?1663965456" class="editor-image img-responsive" data-smartkarma-image-id="299641"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 8: Top 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/642/original/image_464755423121663965477533.png?1663965479" class="editor-image img-responsive" data-smartkarma-image-id="299642"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/643/original/image_610016714131663965495861.png?1663965497" class="editor-image img-responsive" data-smartkarma-image-id="299643"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<p>Figure 9: Bottom 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/644/original/image_475985953141663965538158.png?1663965539" class="editor-image img-responsive" data-smartkarma-image-id="299644"></figure>
<div class="content-remarks">
<p>Source: WTR Research</p>
</div>
<h2>SPAC TALK FOCUS</h2>
<h2>Chamath Palihapitiya – Is the ‘SPAC King’ Abdicating?</h2>
<p>In a week in which the world’s second-longest reigning monarch in history (behind France’s King Louis XIV), the United Kingdom’s Queen Elizabeth II, was laid to rest, the so-called ‘SPAC King’, Chamath Palihapitiya (so dubbed by the media in recognition of his status as one of SPAC land’s most prolific sponsors and certainly one of its most enthusiastic promoters) announced that he will lay to rest two of the SPACs, having failed to find an appropriate merger partner since they were IPOed two years ago. Technology sector-focused Social Capital Hedosophia Holdings Corporations IV and VI (IPOD and IPOF) are scheduled to be liquidated on October 14, with the SPACs returning $1.6 billion of the combined cash in trust (less expenses) to shareholders by October 17.</p>
<p>While these are among the most recent of the growing slew of liquidations seen this year, their liquidations carry the most significant in terms of symbolism as Chamath is arguably the sponsor whose name is the most emblematic of the 2020/2021 SPAC boom and the most active booster of retail investor interest in SPACs during the height of the boom through his frequent use of social media. Chamath’s decision to liquidate two of his SPACs, including his largest, IPOF, which raised $1.15 billion in gross proceeds in October 2020 when the SPAC was gathering momentum, will be interpreted as sign of disenchantment for an asset class he so enthusiastically promoted.</p>
<p>Chamath is associated with a total of 18 SPACs. As a sponsor, he brought 10 SPACs to the market since 2017, although none since June 30, 2021. The 10 SPACs are more than any of his rival serial sponsors other than Alec Gores, who has sponsored 10. It should be noted, however, that Chamath has also participated in another eight SPACs as a PIPE investor.</p>
<p>Figure 10 shows how Chamath’s sponsored SPAC investment performance compare with the other leading serial SPAC sponsors. While Chamath might be the best known of the leading serial sponsors listed, this recognition is not commensurate with his investment performance.</p>
<p>Figure 10: Performance of Leading Serial Sponsors</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/645/original/image_566834265151663965578272.png?1663965579" class="editor-image img-responsive" data-smartkarma-image-id="299645"></figure>
<div class="content-remarks">
<p>Source: WTR</p>
</div>
<p>Chamath is not only the one leading serial sponsor that is liquidating SPACs so far, but his de-SPACs have also generally performed poorly relative to those of the other sponsors on the list. In fact, none of his de-SPACs trade above the SPAC redemption price. It is pretty much the same story for his PIPE investments, although here he can claim one winner that he backed, MP Materials, a rare earth materials producer and processor that is delivering an outsized IRR of almost 90%.</p>
<p>Judging the overall investment performance from the asset class, SPACs may not be his thing anymore. The ‘SPAC King’ may well be ready to abdicate as he searches for the next hot trend.</p>
<h3>DISCLOSURES</h3>
<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 and Healthcare sectors 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


‘SPAC King’ joins the liquidation line.&nbsp;There were four new liquidation announcements, all made on September 20 and to be completed next month. Two of the SPACs that have been consigned to liquidation are of particular interest and carry symbolic significance as they are sponsored by Chamath Palihapitiya, dubbed the ‘SPAC King’ by the media in recognition of his status as one of the most prolific SPAC sponsors who helped fuel the SPAC boom. His intention to liquidate two of his SPACs presumes some disenchantment with SPAC assets that he had so enthusiastically promoted. Our SPAC Talk Focus this week compares how Chamath’s SPAC investments have performed relative to other leading serial SPAC sponsors.
New deals continue to flow.&nbsp;Although the SPAC IPO market continues to operate on a slow-drip basis, with one IPO priced this week doubling the IPO count for the month to date, new IBC deal flow has been flowing more freely. Four more deals were announced in the past week, bringing the total for the month so far to 13 with an aggregate IBC value of $8.9 billion or an average of $684 million per IBC, which is up from $539 million in August, albeit below the year’s average of $789 million (we must correct a misprint in last week’s SPAC Talk, which cited 13, when it was only nine). One piece of good news on the deal front is that there have been no deal cancelations since the end of August.
Redemption rates are down in September.&nbsp;We have also seen the completion of six de-SPACings in the month to date, including the much-awaited video sharing platform Rumble Inc. (NASDAQ: RUM). In fact, RUM shattered the mold of de-SPACs by reporting a spectacularly low redemption rate of 0.1%. Another de-SPAC completed this month, a China-based hologram technology company, also came in with a below-trend redemption rate of 38%. As a result of these outliers, the average for the month stands at 60%, well below the 80%+ range we’ve been used to this year.

SPAC STATISTICS




Source: WTR

SPAC HAPPENINGS IN SEPTEMBER 2022
Figure 1: IPO Pricings/Completed Liquidations


Source: WTR Research

Figure 2: IBC Announcements/Terminations


Source: WTR Research

Figure 3: De-SPACings


Source: WTR Research

SPAC/DE-SPAC RETURNS
Figure 4: Live IBCs (Initial Business Combinations)—Key Stats


Source: WTR Research

Figure 5: Top 5 Live IBCs by Share Price


Source: WTR Research

Figure 6: Bottom 5 Live IBCs by Share Price


Source: WTR Research

Figure 7: De-SPACs—Key Stats


Source: WTR Research

Figure 8: Top 5 De-SPAC Performers by Share Price


Source: WTR Research



Source: WTR Research

Figure 9: Bottom 5 De-SPAC Performers by Share Price


Source: WTR Research

SPAC TALK FOCUS
Chamath Palihapitiya – Is the ‘SPAC King’ Abdicating?
In a week in which the world’s second-longest reigning monarch in history (behind France’s King Louis XIV), the United Kingdom’s Queen Elizabeth II, was laid to rest, the so-called ‘SPAC King’, Chamath Palihapitiya (so dubbed by the media in recognition of his status as one of SPAC land’s most prolific sponsors and certainly one of its most enthusiastic promoters) announced that he will lay to rest two of the SPACs, having failed to find an appropriate merger partner since they were IPOed two years ago. Technology sector-focused Social Capital Hedosophia Holdings Corporations IV and VI (IPOD and IPOF) are scheduled to be liquidated on October 14, with the SPACs returning $1.6 billion of the combined cash in trust (less expenses) to shareholders by October 17.
While these are among the most recent of the growing slew of liquidations seen this year, their liquidations carry the most significant in terms of symbolism as Chamath is arguably the sponsor whose name is the most emblematic of the 2020/2021 SPAC boom and the most active booster of retail investor interest in SPACs during the height of the boom through his frequent use of social media. Chamath’s decision to liquidate two of his SPACs, including his largest, IPOF, which raised $1.15 billion in gross proceeds in October 2020 when the SPAC was gathering momentum, will be interpreted as sign of disenchantment for an asset class he so enthusiastically promoted.
Chamath is associated with a total of 18 SPACs. As a sponsor, he brought 10 SPACs to the market since 2017, although none since June 30, 2021. The 10 SPACs are more than any of his rival serial sponsors other than Alec Gores, who has sponsored 10. It should be noted, however, that Chamath has also participated in another eight SPACs as a PIPE investor.
Figure 10 shows how Chamath’s sponsored SPAC investment performance compare with the other leading serial SPAC sponsors. While Chamath might be the best known of the leading serial sponsors listed, this recognition is not commensurate with his investment performance.
Figure 10: Performance of Leading Serial Sponsors


Source: WTR

Chamath is not only the one leading serial sponsor that is liquidating SPACs so far, but his de-SPACs have also generally performed poorly relative to those of the other sponsors on the list. In fact, none of his de-SPACs trade above the SPAC redemption price. It is pretty much the same story for his PIPE investments, although here he can claim one winner that he backed, MP Materials, a rare earth materials producer and processor that is delivering an outsized IRR of almost 90%.
Judging the overall investment performance from the asset class, SPACs may not be his thing anymore. The ‘SPAC King’ may well be ready to abdicate as he searches for the next hot trend.
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 and Healthcare sectors 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.

SPAC Talk: Kings, Queens, and SPACs