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)

Consumer Staples Select Sector SPDR Fund (XLP US)

<h2>KEY HIGHLIGHTS</h2>
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<ul>
<li>Better late than never.&nbsp;The past week has been a relatively busy week for SPACs, which is a rare statement in the context of 2022 so far. Seven new initial business combination (IBC) announcements were made in the May 11-18 period. This represents the most announcements made in a seven-day period this year since March and January, respectively. The announcement on May 18 by SPAC Tuscan Holdings Corp II (THCA) of its proposed $1.42 billion merger with Surf Air Mobility, an electric powered aviation and air travel company, deserves special mention as THCA, IPOed in June 2019, had been the longest established SPAC seeking a merger partner until now, a total of 1,071 days, which included one deadline extension. The total number of new deal announcements a little more than halfway through May is 11, with the average size of per deal just under $1 billion.</li>
<li>SPAC IPOs continue their slow flow.&nbsp;By contrast, there is little to report on the IPO front, with only one new IPO priced in the past week: Prime Number Acquisition1 Corp (PNACU), a small fintech focused SPAC, which raised $64.5 million. The IPO count For May to date is six, which is half the number of IPO registrations that have been withdrawn so far this month. The SPAC IPO pipeline stands at 150 and is likely to become smaller. Despite the pickup in IBC announcements, the SPAC space is crowded, with 601 SPACs still in search for their ideal merger targets.</li>
<li>De-Spanked. There is no relief for de-SPACs, with more than 90% of the 235 companies de-SPACed since the start of 2021 trading under water and close to 60% of all de-SPACs way under water (i.e., currently trading below $5), The decimation of value among de-SPACs has been sector agnostic as highlighted in the data we have presented in this week’s SPAC Talk Focus.</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>No Safe Haven for De-SPAC Investors</h2>
<p>Table 7 highlights the average annualized returns of all companies de-SPACed since the start of 2021 by sector and compares them with annualized returns from an ETF corresponding to each sector, Unfortunately, the table does not make enjoyable reading for the original SPAC public shareholders, and much less so for those who invested at the time of the de-SPACing. No sector in the de-SPAC universe has been spared, although as Tables 4 and 5 indicate, there are rare bright spots.</p>
<p>Measured from the time of the SPAC IPO, the energy de-SPACs have generated the least losses, although this is due largely to the performance of one de-SPAC, renewable natural gas and electricity producer, Archaea Energy (LFG), which has generated an annualized return of 54% since the IPO of its SPAC partner Rice Acquisition Corp in October 2020. However, since its de-SPACing, LFG’s annualized return has been a much less impressive negative 10%. Nevertheless, even this performance compares favorably with most of the other de-SPACs across a variety of sectors. Note the significant underperformance of de-SPACs against corresponding sector ETFs. Only cannabis de-SPACs appear to have outperformed the corresponding sector ETF.</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


Better late than never.&nbsp;The past week has been a relatively busy week for SPACs, which is a rare statement in the context of 2022 so far. Seven new initial business combination (IBC) announcements were made in the May 11-18 period. This represents the most announcements made in a seven-day period this year since March and January, respectively. The announcement on May 18 by SPAC Tuscan Holdings Corp II (THCA) of its proposed $1.42 billion merger with Surf Air Mobility, an electric powered aviation and air travel company, deserves special mention as THCA, IPOed in June 2019, had been the longest established SPAC seeking a merger partner until now, a total of 1,071 days, which included one deadline extension. The total number of new deal announcements a little more than halfway through May is 11, with the average size of per deal just under $1 billion.
SPAC IPOs continue their slow flow.&nbsp;By contrast, there is little to report on the IPO front, with only one new IPO priced in the past week: Prime Number Acquisition1 Corp (PNACU), a small fintech focused SPAC, which raised $64.5 million. The IPO count For May to date is six, which is half the number of IPO registrations that have been withdrawn so far this month. The SPAC IPO pipeline stands at 150 and is likely to become smaller. Despite the pickup in IBC announcements, the SPAC space is crowded, with 601 SPACs still in search for their ideal merger targets.
De-Spanked. There is no relief for de-SPACs, with more than 90% of the 235 companies de-SPACed since the start of 2021 trading under water and close to 60% of all de-SPACs way under water (i.e., currently trading below $5), The decimation of value among de-SPACs has been sector agnostic as highlighted in the data we have presented in this week’s SPAC Talk Focus.

SPAC STATISTICS


SPAC/DE-SPAC RETURNS




SPAC TALK FOCUS
No Safe Haven for De-SPAC Investors
Table 7 highlights the average annualized returns of all companies de-SPACed since the start of 2021 by sector and compares them with annualized returns from an ETF corresponding to each sector, Unfortunately, the table does not make enjoyable reading for the original SPAC public shareholders, and much less so for those who invested at the time of the de-SPACing. No sector in the de-SPAC universe has been spared, although as Tables 4 and 5 indicate, there are rare bright spots.
Measured from the time of the SPAC IPO, the energy de-SPACs have generated the least losses, although this is due largely to the performance of one de-SPAC, renewable natural gas and electricity producer, Archaea Energy (LFG), which has generated an annualized return of 54% since the IPO of its SPAC partner Rice Acquisition Corp in October 2020. However, since its de-SPACing, LFG’s annualized return has been a much less impressive negative 10%. Nevertheless, even this performance compares favorably with most of the other de-SPACs across a variety of sectors. Note the significant underperformance of de-SPACs against corresponding sector ETFs. Only cannabis de-SPACs appear to have outperformed the corresponding sector ETF.

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.

SPAC Talk: No Safe Haven for De-SPAC Investors