August has emerged as the busiest month in 2023 for Special Purpose Acquisition Companies, or SPACs, with a total deal value of $9.1 billion and an average transaction size of $481 million.
The flurry of activity is reminiscent of the heady days of SPAC enthusiasm with 19 new SPAC merger deals announced this month alone.
Comparatively, January 2023’s average deal size was $586 million.
Among the standout deals in August is the proposed $1.58 billion merger between SPAC CVII and UK-based private equity firm CorpAcq, as well as SPAC FNVT's $1 billion deal with Chinese new energy heavy-duty vehicle manufacturer Scage International.
However, amidst the SPAC rush, there's also been a sobering reality check.
“Entering into a merger agreement is no guarantee that it will close,” Water Tower Research’s Robert Sasson noted.
Eight deal terminations happened in August, the second-highest monthly total this year. SPAC GGAA $312-million deal with travel technology company NextTrip had only been announced in May – GGAA's second deal collapse this year.
VinFast in focus
Amid these developments, the de-SPACing of VinFast (VFS) stands out as a beacon of past SPAC exuberance – or an “eerie echo of past hype,” according to Water Tower’s Sasson.
The opposite of SPACs, a de-SPAC occurs when a private company merges with an existing public shell company that was formed as a SPAC, instead of raising funds to acquire a company.
Barely three months after its agreement, the $27 billion VFS de-SPACing is the largest since the $33 billion MSP Recovery in May 2022.
Despite initial concerns about its valuation, VFS has made an impressive debut in public trading, with its share price surging by 254%, evoking memories of the recent history of overhyped de-SPACs.
This performance stands out, considering the cooling trend observed in other de-SPACs after a strong rebound earlier in the year, Sasson noted.
What's particularly striking is that VFS, initially valued at $27 billion when the deal was announced in May, is now valued at $86 billion, nearly twice the market capitalization of major automakers like General Motors (GM) or Ford (F). However, Sasson noted that VFS is thinly traded, with public shares representing only 0.6% of the company's outstanding equity, which consists of 2.32 billion shares.
This raises questions about the sustainability of its outsized equity value and the potential impact of its limited public trading on future share price dynamics, according to Sasson.
VFS’s valuation relative to comps has become “even more asymmetric” considering the company’s 2023 earnout target and consensus estimates for the comps, “let alone a more realistic assessment given that VFS generated just $83.5 million of revenues in 1Q23 or an annualized run rate of $334 million,” Sasson wrote.
“On that basis, getting anywhere close to the earnout target for the full year does seem nigh on impossible even assuming a reasonable ramp-up in EV sales over the balance of the year…One can reasonably presume VFS needs significantly more financial resources to enable it to ramp up its EV production and execute its expansion strategy.”
Sasson added a small warning.
“The strength in the share price does increase the odds of a potentially hefty secondary offering coming sooner rather than later. Overall, the risks associated with VFS are high.”
Contact Angela at angela@proactiveinvestors.com
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