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>
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<ul>
<li>Goldman Sachs joins Citi in SPAC pause.&nbsp;It has been reported that Goldman Sachs has paused new SPAC offerings and will also stop working with the majority of SPACs that it helped to take public. Goldman Sachs is the second major SPAC underwriter to detach itself from SPAC land since the SEC proposed tougher rules to regulate SPACs at the end of March, which included provisions to expand statutory underwriter liability. In early April, Citigroup suspended its participation in new SPAC operations until more clarity on the potential legal risks posed by the proposals is forthcoming. Citi and Goldman Sachs were the two leading SPAC IPO bookrunners in 2021, accounting for $37.4 billion in volume or about a quarter of total SPAC IPO bookrunner volume ($162.5 billion) in that record year. Lower participation from these leading underwriters and others, such as Bank of America, will likely choke supply of new SPAC IPOs to the already slowing market. Perhaps, no bad thing given that 606 live SPACs remain targetless.</li>
<li>Pain continues for de-SPAC investors.&nbsp;Meanwhile<br>de-SPAC investors have had it rough for a while. De-SPACs as a category have materially underperformed the S&amp;P 500 and traditional IPOs over the past 12 months, year-to-date, and since the start of Russia’s invasion of Ukraine Of all the<br>de-SPACs completed (234) since the start of 2021, 221 or 94% are trading well below their redemption prices, and 144 or 62% at less than half that value. Eight out of the 12 de-SPACs trading above their SPAC IPO prices were de-SPACed this year, led by financial data services company FRGE, whose share price has risen ~150% since merger completion.</li>
<li>Targets aplenty, but not enough cents.&nbsp;With 606 SPACs still looking for targets, our SPAC Talk focus looks at which sectors are being targeted. While there seems to be no shortage of capital hungry privately owned companies, particularly in the tech sector, capital allocation decisions by SPACs are confronting more restrictive conditions imposed by the market and most likely soon from the regulators.</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>SPACs and Their Search for Their Holy Grails</h2>
<p>As of writing, there are 606 SPACs still searching for their ideal merger partners. While 150 of these SPACs have no stated preference, technology is the most popular target sector for SPACs. About one quarter of these unattached SPACs are targeting technology companies. In fact, since most of the sectors listed in Table 7 embrace technology, whether it be Automotive, Cleantech, Fintech, Media, etc., we might consider that technology companies in the broader sense are the SPACs’ principal targets.</p>
<p>It should be no surprise that SPACs will tend to feed on tech targets. After all, they ostensibly make good bedfellows. One reason is that there is a plethora of privately owned tech companies at various stages of development, hungry for development/growth capital. According to one estimate we have seen, there are at least 585,000 mostly privately held technology companies in the US. The problem does not appear to be so much the availability of potential targets to SPACs, but rather the restrictions imposed by the market (and potentially the regulators) on capital allocation decisions in the wake of profligate SPAC merger deals with very hopeful valuations, which have led to much disappointment. For SPACs, this will limit target options.</p>
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<p>Of the SPACs that have announced deals, but are yet to close, healthcare deals lead the way, followed by technology, but the big deals have been in the fintech space, which has been somewhat battered in the prevailing market volatility. With time running out for some of those deals to close, the risk of adding to the 20 deals terminated so far this year increases in the current environment.</p>
<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


Goldman Sachs joins Citi in SPAC pause.&nbsp;It has been reported that Goldman Sachs has paused new SPAC offerings and will also stop working with the majority of SPACs that it helped to take public. Goldman Sachs is the second major SPAC underwriter to detach itself from SPAC land since the SEC proposed tougher rules to regulate SPACs at the end of March, which included provisions to expand statutory underwriter liability. In early April, Citigroup suspended its participation in new SPAC operations until more clarity on the potential legal risks posed by the proposals is forthcoming. Citi and Goldman Sachs were the two leading SPAC IPO bookrunners in 2021, accounting for $37.4 billion in volume or about a quarter of total SPAC IPO bookrunner volume ($162.5 billion) in that record year. Lower participation from these leading underwriters and others, such as Bank of America, will likely choke supply of new SPAC IPOs to the already slowing market. Perhaps, no bad thing given that 606 live SPACs remain targetless.
Pain continues for de-SPAC investors.&nbsp;Meanwhile de-SPAC investors have had it rough for a while. De-SPACs as a category have materially underperformed the S&amp;P 500 and traditional IPOs over the past 12 months, year-to-date, and since the start of Russia’s invasion of Ukraine Of all the de-SPACs completed (234) since the start of 2021, 221 or 94% are trading well below their redemption prices, and 144 or 62% at less than half that value. Eight out of the 12 de-SPACs trading above their SPAC IPO prices were de-SPACed this year, led by financial data services company FRGE, whose share price has risen ~150% since merger completion.
Targets aplenty, but not enough cents.&nbsp;With 606 SPACs still looking for targets, our SPAC Talk focus looks at which sectors are being targeted. While there seems to be no shortage of capital hungry privately owned companies, particularly in the tech sector, capital allocation decisions by SPACs are confronting more restrictive conditions imposed by the market and most likely soon from the regulators.

SPAC STATISTICS



SPAC/DE-SPAC RETURNS





SPAC TALK FOCUS
SPACs and Their Search for Their Holy Grails
As of writing, there are 606 SPACs still searching for their ideal merger partners. While 150 of these SPACs have no stated preference, technology is the most popular target sector for SPACs. About one quarter of these unattached SPACs are targeting technology companies. In fact, since most of the sectors listed in Table 7 embrace technology, whether it be Automotive, Cleantech, Fintech, Media, etc., we might consider that technology companies in the broader sense are the SPACs’ principal targets.
It should be no surprise that SPACs will tend to feed on tech targets. After all, they ostensibly make good bedfellows. One reason is that there is a plethora of privately owned tech companies at various stages of development, hungry for development/growth capital. According to one estimate we have seen, there are at least 585,000 mostly privately held technology companies in the US. The problem does not appear to be so much the availability of potential targets to SPACs, but rather the restrictions imposed by the market (and potentially the regulators) on capital allocation decisions in the wake of profligate SPAC merger deals with very hopeful valuations, which have led to much disappointment. For SPACs, this will limit target options.

Of the SPACs that have announced deals, but are yet to close, healthcare deals lead the way, followed by technology, but the big deals have been in the fintech space, which has been somewhat battered in the prevailing market volatility. With time running out for some of those deals to close, the risk of adding to the 20 deals terminated so far this year increases in the current environment.
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.

Silver Spike Acquisition Corp II (SPKB US)

SPAC Talk: Limited Choices in a Sea of Potential Targets