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

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a>. The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.In <a href="https://www.smartkarma.com/insights/soho-china-blackstone-makes-its-offer" target="_blank" data-smartkarma-citation="insights:53191" rel="noopener">SOHO China: Blackstone Makes Its Offer</a>, we stated that Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we concluded that the offer will resonate with some shareholders. However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to 21% at the last close price of HK$4.12. The high spread is due to concerns that the key pre-condition, which is approval by SAMR under the PRC anti-monopoly law, will not be forthcoming. Blackstone has made its submission to SAMR.  <div class="content-highlight">We continue to think that the pre-condition will be satisfied as SOHO China will remain a listed entity, Pan Shiyi and Zhang Xin will continue to retain a meaningful holding, Blackstone has prior experience in closing Chinese real estate deals and SOHO China is a relatively small player in a fragmented commercial property market in China. Based on a deal break price of HK$2.45 per share, the deal probability has reached an all-time low of 65% at the last close price of HK$4.12. An 80% deal probability would imply a price of HK$4.50 per share and an 11% gross spread, which we view as reasonable.</div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.In SOHO China: Blackstone Makes Its Offer, we stated that Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we concluded that the offer will resonate with some shareholders. However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to 21% at the last close price of HK$4.12. The high spread is due to concerns that the key pre-condition, which is approval by SAMR under the PRC anti-monopoly law, will not be forthcoming. Blackstone has made its submission to SAMR.  We continue to think that the pre-condition will be satisfied as SOHO China will remain a listed entity, Pan Shiyi and Zhang Xin will continue to retain a meaningful holding, Blackstone has prior experience in closing Chinese real estate deals and SOHO China is a relatively small player in a fragmented commercial property market in China. Based on a deal break price of HK$2.45 per share, the deal probability has reached an all-time low of 65% at the last close price of HK$4.12. An 80% deal probability would imply a price of HK$4.50 per share and an 11% gross spread, which we view as reasonable.

<a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. Today, SOHO China has announced a pre-conditional voluntary conditional cash offer from <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a>. The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt).As a reminder on 15 June, SOHO China entered a trading halt pending the release of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers which we discussed in <a href="https://www.smartkarma.com/insights/soho-china-after-many-false-starts-finally-an-offer" target="_blank" data-smartkarma-citation="insights:53114" rel="noopener">SOHO China: After Many False Starts, Finally an Offer?</a>. The key pre-condition is approval by SAMR under the PRC anti-monopoly law, which we think should be forthcoming as this is not a privatisation bid. The offer is conditional on the offeror holding more than 50% of the voting rights. The offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares. Consequently, the offer has met the 50+% acceptance threshold. Pan Shiyi and Zhang Xin will retain shares representing 9.00% of the outstanding shares. Blackstone aims to maintain SOHO China’s listing. <div class="content-highlight">Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we think that the offer which has met the acceptance threshold, will also resonate with some shareholders. </div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. Today, SOHO China has announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt).As a reminder on 15 June, SOHO China entered a trading halt pending the release of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers which we discussed in SOHO China: After Many False Starts, Finally an Offer?. The key pre-condition is approval by SAMR under the PRC anti-monopoly law, which we think should be forthcoming as this is not a privatisation bid. The offer is conditional on the offeror holding more than 50% of the voting rights. The offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares. Consequently, the offer has met the 50+% acceptance threshold. Pan Shiyi and Zhang Xin will retain shares representing 9.00% of the outstanding shares. Blackstone aims to maintain SOHO China’s listing. Blackstone has driven a hard bargain and secured the irrecovables from Pan Shiyi and Zhang Xin at a relatively good price. Notably, Blackstone’s offer price of HK$5.00 per share is 17% below last year’s rumoured privatisation price of HK$6.00 per share. The lower price likely explains Blackstone’s move to pursue a conditional voluntary offer rather than privatisation via a scheme. While not a knockout offer, we think that the offer which has met the acceptance threshold, will also resonate with some shareholders. 

<a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. Today, SOHO China entered a trading halt pending the release of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers. Since 3 June, SOHO China’ shares have risen 55%. SOHO China has been subject to bid rumours in the recent past. On 11 March 2020, SOHO China confirmed that it is in discussions with overseas financial investors to explore the possibility of a strategic partnership, which may lead to a general offer. The announcement was a reaction to a Reuters report the previous day which claimed that <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a> was looking to privatise SOHO China at HK$6.00 per share. The controlling shareholders (Chairman Pan Shiyi and Chief Executive Zhang Xin) who have a 63.93% stake, planned to retain a small stake in the deal with Blackstone. On 13 August 2020, SOHO China announced that "previous discussions with various investors have now been terminated." A potential deal with Blackstone was derailed as the COVID-19 pandemic made it difficult to assess the business outlook, according to press reports. Subsequently, on 13 November 2020, Hillhouse Capital responded to media rumours by stating it had no interest in taking SOHO China private.As SOHO China is incorporated in the Cayman Islands, we think that a potential offer will be likely structured as a scheme of arrangement. The key conditions precedent are the headcount test and the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection).<div class="content-highlight">SOHO China has weathered the COVID-19 pandemic creditably which supports a potential offer. We think that Blackstone is the most likely bidder and the last year’s rumoured offer of HK$6.00 per share remains justifiable.    </div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. Today, SOHO China entered a trading halt pending the release of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers. Since 3 June, SOHO China’ shares have risen 55%. SOHO China has been subject to bid rumours in the recent past. On 11 March 2020, SOHO China confirmed that it is in discussions with overseas financial investors to explore the possibility of a strategic partnership, which may lead to a general offer. The announcement was a reaction to a Reuters report the previous day which claimed that Blackstone Group (BX US) was looking to privatise SOHO China at HK$6.00 per share. The controlling shareholders (Chairman Pan Shiyi and Chief Executive Zhang Xin) who have a 63.93% stake, planned to retain a small stake in the deal with Blackstone. On 13 August 2020, SOHO China announced that "previous discussions with various investors have now been terminated." A potential deal with Blackstone was derailed as the COVID-19 pandemic made it difficult to assess the business outlook, according to press reports. Subsequently, on 13 November 2020, Hillhouse Capital responded to media rumours by stating it had no interest in taking SOHO China private.As SOHO China is incorporated in the Cayman Islands, we think that a potential offer will be likely structured as a scheme of arrangement. The key conditions precedent are the headcount test and the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection).SOHO China has weathered the COVID-19 pandemic creditably which supports a potential offer. We think that Blackstone is the most likely bidder and the last year’s rumoured offer of HK$6.00 per share remains justifiable.    

SOHO China: After Many False Starts, Finally an Offer?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Sona Blw Precision Forgings Lt / Equity Capital Markets

Sona Comstar (Sona) aims to raise around US$761m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.Sona is an automotive technology company, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments.Sona delivered a steady performance in 2019 with revenue up 16.6% and PAT up 24.1%. However, its revenue fell by 14.5% in FY20, although it still managed to grow its PAT by 4%. It registered a strong bounce bank in FY21 with 28.4% revenue growth but PAT was flat.While the company enjoys a long customer relationship, its largest customers haven’t consistently grown their contribution to revenue over the past few years.We have covered the deal background in our earlier note, <a href="https://www.smartkarma.com/insights/sona-comstar-pre-ipo-inconsistent-growth-patchy-disclosures" target="_blank" rel="noopener">Sona Comstar Pre-IPO - Inconsistent growth, patchy disclosures. </a>In this note, we will talk about the recent updates and run the deal through our ECM framework.

Sona Comstar (Sona) aims to raise around US$761m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.Sona is an automotive technology company, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments.Sona delivered a steady performance in 2019 with revenue up 16.6% and PAT up 24.1%. However, its revenue fell by 14.5% in FY20, although it still managed to grow its PAT by 4%. It registered a strong bounce bank in FY21 with 28.4% revenue growth but PAT was flat.While the company enjoys a long customer relationship, its largest customers haven’t consistently grown their contribution to revenue over the past few years.We have covered the deal background in our earlier note, Sona Comstar Pre-IPO - Inconsistent growth, patchy disclosures. In this note, we will talk about the recent updates and run the deal through our ECM framework.

Sona Comstar - Has Its Positives, but We Remain Unconvinced

United States

Blackstone Inc. operates as an investment company. The Company focuses on real estate, hedge funds, private equity, leveraged lending, senior debts, and rescue financing. Blackstone serves customers worldwide.

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Blackstone (BX US)

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

SOHO China’s Offer Spread Risk/Reward

Based on a break price of HK$2.45 per share, the deal probability has reached an all-time low of 65% at the last close price. An 80% deal...

Arun George

SOHO China: Blackstone Makes Its Offer

SOHO China has announced a pre-conditional voluntary conditional cash offer from Blackstone at HK$5.00 in cash per share. Due to irrevocables the...

Arun George

SOHO China: After Many False Starts, Finally an Offer?

SOHO China entered a trading halt pursuant to the HK Code on Takeovers & Mergers. We think that Blackstone is the most likely bidder and the last...

Arun George

Sona Comstar - Has Its Positives, but We Remain Unconvinced

Sona Comstar aims to raise around US$761m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.

Sumeet Singh

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