SPAC Deep Dive, subSPAC

subSPAC

SPAC Deep Dive

Each week we’ll identify and break down for you SPACs that are capturing market share and making an impact.

Equity Bottom-Up

<ul><li>Two years ago, when SPACs were the talk of the town, Alight, a firm specializing in cloud-based HR and benefits services, took the plunge.</li><li>With a $7.3 billion merger supported by Bill Foley, they went public right in the midst of the SPAC craze.</li><li>Fast forward to today, the business climate is quite different.</li></ul>

Two years ago, when SPACs were the talk of the town, Alight, a firm specializing in cloud-based HR and benefits services, took the plunge.With a $7.3 billion merger supported by Bill Foley, they went public right in the midst of the SPAC craze.Fast forward to today, the business climate is quite different.

Sharing In Depth Investment Ideas, Zippy Capital

Zippy Capital

Sharing In Depth Investment Ideas

<ul><li>Alight (NYSE: ALIT, $4.5b market cap) is a well-established company providing health, wealth, payroll administration, and human capital management cloud advisory services to most of the leading companies in the United States.</li><li>The company exhibits many qualities that make it an attractive long-term investment: this is an extremely sticky business with 97% revenue retention, high levels of recurring revenues, a market-leading position, and a blue-chip customer base.</li><li>Management also has many levers to accelerate growth further and improve profitability.</li></ul>

Alight (NYSE: ALIT, $4.5b market cap) is a well-established company providing health, wealth, payroll administration, and human capital management cloud advisory services to most of the leading companies in the United States.The company exhibits many qualities that make it an attractive long-term investment: this is an extremely sticky business with 97% revenue retention, high levels of recurring revenues, a market-leading position, and a blue-chip customer base.Management also has many levers to accelerate growth further and improve profitability.

Alight: A Highly Durable Business With Long-Term Potential

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

Back in September 2020, amid a boom in SPAC investing that had never been seen before and against the backdrop of profitless companies (and in some cases years from actual revenue generation) being propelled to insane valuations , we published an insight effectively warning investors to be very wary and selective (cf. MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning. Read more: <a href="https://skr.ma/JNmvg" target="_blank" rel="noopener">https://skr.ma/JNmvg</a> ). The fresh supply of SPAC IPOs in the US keeps on coming -the number of completed SPAC IPOs so far this year has already eclipsed the record total set for all of 2020 by 51% (374 vs 248)  and is well on target to surpass the number of traditional IPOs in the US for the second year running - in  2020, there were a total of 227 traditional IPOs with that number standing at 157 so far this year, well behind SPAC IPOs. In 2020, SPACs raised more cash ($83BN) than the total amount raised  over the preceding 17 years. So far in 2021, the cash raised from SPAC IPOs is already approaching 40% higher than 2021 at $114BN.However, these stats do not disguise the fact that the enthusiasm for SPACs has cooled  since mid-February. A snapshot reflection of this change in mood is the performance of the first 3 SPAC ETFs introduced to the market which began with SPAK at the beginning of October 2020.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/219/878/original/image_45285074321626909062078.png?1626909063" class="editor-image img-responsive" data-smartkarma-image-id="219878"></figure>The average size of SPAC IPOs this year is 9% lower at $305MN than last year's ~$336MN. Perhaps more revealing, out of a total of 152 SPACs total that have announced business combinations and are in the process of de-SPACing, 92 (i.e., 61%) are trading below the SPAC IPO price of $10.  Of the 134 SPAC business combinations completed around one half are currently trading above the  SPAC IPO price, and many of those well below their post-merger highs.As our November insight indicates, we have been somewhat skeptical of the SPAC investment space. We believe that much of the SPAC investment frenzy witnessed in the past 18 months has was driven by  thematic interest over the more diligent scrutiny of the business combination.<blockquote>The observation is that not all SPAC mergers are created equal and that the majority are prone to value destruction.  It appears that SPAC investors are most excited about transactions in “emerging” trends such as green mobility or pandemic resistant areas such as online gaming and packaged/healthy foods rather than companies with a solid fundamental track record of revenue generation and profitability.</blockquote>Source: MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning, November 2020We are not suggesting for one moment that SPAC investing is a passing fad. The SPAC investing community is a far cry from the predominantly roulette table retail investors of yesteryear. Yes, the speculative element in SPACs has been very  much in evidence over the past 18 months, but greater involvement from well established institutional investors/sponsors in the most recent SPAC wave and the prospect of more intense regulatory scrutiny following several high profile investment debacles in the past 18 months will hopefully see this investment class evolve towards greater emphasis on quality rather than quantity. As of today there remains a lot of liquidity chasing SPACs with capital searching for deals. As of today there are 305 pending IPOs, 574 active SPACs of which 425  still need to find companies with which to merge.While there is certainly a lot of chaff in the SPAC investment space, there are also hidden gems  to be uncovered. Not uncommon in thematic oriented investments, when in fashion, the rising tide raises all ships, whether seaworthy or not. By the same token, when enthusiasm wanes, even the better quality companies can get caught up in the sell-off. This is more so in an investment category where there is still limited research coverage.  Judging from the job postings we have seen, investment banks  and hedge funds are looking to build out their SPAC research capabilities, but the current dearth of quality sell-side coverage of the 100s of active SPACs creates an opportunity for those willing to put in the required research/due-diligence effort to discover potentially lucrative undervalued  businesses.In this respect,  the simple formula we would follow is to hone in on SPACs with good sponsors backed up by a strong track record, either in the process of executing an Initial Business Combination (IBC) or having recently completed business combination with a company with a fundamentally sound business and strategy, preferably supported by an established operating track record that is already delivering revenues and profitability. There may be a number of other hidden gems to uncover within the SPAC universe, in this insight, we highlight one example of a recently completed business combination which has caught our eye - <a href="https://www.smartkarma.com/entities/alight-inc" target="_blank" data-smartkarma-citation="entities:27940:1" rel="noopener">Alight Inc (ALIT US)</a> which we believe ticks all the aforementioned boxes.

Back in September 2020, amid a boom in SPAC investing that had never been seen before and against the backdrop of profitless companies (and in some cases years from actual revenue generation) being propelled to insane valuations , we published an insight effectively warning investors to be very wary and selective (cf. MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning. Read more: https://skr.ma/JNmvg ). The fresh supply of SPAC IPOs in the US keeps on coming -the number of completed SPAC IPOs so far this year has already eclipsed the record total set for all of 2020 by 51% (374 vs 248)  and is well on target to surpass the number of traditional IPOs in the US for the second year running - in  2020, there were a total of 227 traditional IPOs with that number standing at 157 so far this year, well behind SPAC IPOs. In 2020, SPACs raised more cash ($83BN) than the total amount raised  over the preceding 17 years. So far in 2021, the cash raised from SPAC IPOs is already approaching 40% higher than 2021 at $114BN.However, these stats do not disguise the fact that the enthusiasm for SPACs has cooled  since mid-February. A snapshot reflection of this change in mood is the performance of the first 3 SPAC ETFs introduced to the market which began with SPAK at the beginning of October 2020.The average size of SPAC IPOs this year is 9% lower at $305MN than last year's ~$336MN. Perhaps more revealing, out of a total of 152 SPACs total that have announced business combinations and are in the process of de-SPACing, 92 (i.e., 61%) are trading below the SPAC IPO price of $10.  Of the 134 SPAC business combinations completed around one half are currently trading above the  SPAC IPO price, and many of those well below their post-merger highs.As our November insight indicates, we have been somewhat skeptical of the SPAC investment space. We believe that much of the SPAC investment frenzy witnessed in the past 18 months has was driven by  thematic interest over the more diligent scrutiny of the business combination.The observation is that not all SPAC mergers are created equal and that the majority are prone to value destruction.  It appears that SPAC investors are most excited about transactions in “emerging” trends such as green mobility or pandemic resistant areas such as online gaming and packaged/healthy foods rather than companies with a solid fundamental track record of revenue generation and profitability.Source: MergerTalk: SPACs May Have Become The Hot New Trend, But SPAC Investment Requires A Health Warning, November 2020We are not suggesting for one moment that SPAC investing is a passing fad. The SPAC investing community is a far cry from the predominantly roulette table retail investors of yesteryear. Yes, the speculative element in SPACs has been very  much in evidence over the past 18 months, but greater involvement from well established institutional investors/sponsors in the most recent SPAC wave and the prospect of more intense regulatory scrutiny following several high profile investment debacles in the past 18 months will hopefully see this investment class evolve towards greater emphasis on quality rather than quantity. As of today there remains a lot of liquidity chasing SPACs with capital searching for deals. As of today there are 305 pending IPOs, 574 active SPACs of which 425  still need to find companies with which to merge.While there is certainly a lot of chaff in the SPAC investment space, there are also hidden gems  to be uncovered. Not uncommon in thematic oriented investments, when in fashion, the rising tide raises all ships, whether seaworthy or not. By the same token, when enthusiasm wanes, even the better quality companies can get caught up in the sell-off. This is more so in an investment category where there is still limited research coverage.  Judging from the job postings we have seen, investment banks  and hedge funds are looking to build out their SPAC research capabilities, but the current dearth of quality sell-side coverage of the 100s of active SPACs creates an opportunity for those willing to put in the required research/due-diligence effort to discover potentially lucrative undervalued  businesses.In this respect,  the simple formula we would follow is to hone in on SPACs with good sponsors backed up by a strong track record, either in the process of executing an Initial Business Combination (IBC) or having recently completed business combination with a company with a fundamentally sound business and strategy, preferably supported by an established operating track record that is already delivering revenues and profitability. There may be a number of other hidden gems to uncover within the SPAC universe, in this insight, we highlight one example of a recently completed business combination which has caught our eye - Alight Inc (ALIT US) which we believe ticks all the aforementioned boxes.

SPACTalk: Shining ALIGHT On The Process Of Separating the Wheat From The Chaff In The SPAC Space

United States

Alight, Inc. provides human capital solutions. The Company specializes in assisting clients navigate the complexity of health, wealth, and human resource. Alight serves customers worldwide.

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Alight (ALIT US)

Alight at the End of the Tunnel

Two years ago, when SPACs were the talk of the town, Alight, a firm specializing in cloud-based HR and benefits services, took the plunge.

subSPAC

Alight: A Highly Durable Business With Long-Term Potential

Alight (NYSE: ALIT, $4.5b market cap) is a well-established company providing health, wealth, payroll administration, and human capital management...

Zippy Capital

SPACTalk: Shining ALIGHT On The Process Of Separating the Wheat From The Chaff In The SPAC Space

While there is certainly a lot of chaff among SPACs/De-SPACs, there are also hidden gems to be discovered. We believe the recently completed De...

Robert Sassoon

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