Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from 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.

Equity Research Firm

Thematic (Sector/Industry)

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<ul>
<li>The SPAC IPO market is all but moribund.&nbsp;At the risk of sounding like a broken record, it has been another quiet week on the SPAC IPO front. As a matter of fact, we have not seen a completed IPO for almost two weeks. So far this month, only six IPOs have been priced and as we enter the last week of May, and should there be no further IPO pricings, May 2022 will end up being the slowest month for SPAC IPOs since April 2020 when only five were priced. Meanwhile, the number of new IPO registrations continues to drop and remains outpaced by the number of registration withdrawals/abandonments by a ratio of more than two to one. This leaves the backlog of pending IPOs at 146, which is likely to shrink further.</li>
<li>New deal announcements.&nbsp;New Initial Business Combination (IBC) announcements continue to chug along as approaching deadlines press SPACs into action. We can add another two smallish deals (transaction value under $1 billion) since last week’s SPAC Talk. KludeIn 1 Acquisition Corp. (INKA) is acquiring a privacy-led data intelligence company,&nbsp;Near Intelligence Holdings, while Alpine Acquisition Corp. (REVE) will merge with&nbsp;Two Bit Circus, creators of the world’s first micro amusement parks. These new deals bring the total number of new SPAC IBC announcements to 13 so far in May. We would add that two SPAC liquidations were announced in the past week, which brings the total to six for the<br>year-to-date. As of writing, the number of live SPACs seeking merger partners is 597, dropping below the 600 level for the first time this year, although still above the 2021 year-end figure of 575.</li>
<li>Legal jeopardy.&nbsp;Our SPAC Talk Focus looks more closely at a rising, albeit unwanted, trend in SPAC Land – Litigation. Last year saw a big jump in private lawsuits, a trend that is expected to continue this year given that 95% of de-SPACs completed since the start of 2021 are trading below the SPAC redemption price and ~60% under half of that value.</li>
</ul>
<h2>SPAC STATISTICS</h2>
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<p>Source: WTR Research</p>
<h2>SPAC/DE-SPAC RETURNS</h2>
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<h2>SPAC TALK FOCUS</h2>
<h2>Legal Jeopardy</h2>
<p>If 2021 was a banner year for SPAC sponsors, underwriters and yes, even investors, albeit for a fleeting period in the earlier part of the year, it is the lawyers that are licking their lips with much excitement. Last year’s surge in SPAC IPO activity and de-SPACing transactions, perhaps not surprisingly, roused increased scrutiny from the SEC, leading to an increase in SEC investigations of and enforcement actions against SPAC-related transactions, culminating in the release at the end of March 2022 of comprehensive proposals (currently going through the public comment phase of the process) for regulatory changes that would materially expand the liability regime for SPAC transactions.</p>
<p>The SPAC exuberance of 2021 has also brought with it a mounting number of private lawsuits. Most of these are based on complaints regarding (1) material omissions or misstatements in the proxy statement, which include financial projections for the post-merger company, and (2) conflicts of interest and breach of fiduciary duty. The SEC has reported that accounting restatements in the US hit a 15-year high with 1,470 issuing restatements in 2021; SPACs accounted for 77% of these restatements. Moreover, many of these involved the issue of a completely new set of financial statements rather than just prior period revisions in a new report. The restatements mainly reflected concerns about the accounting treatments of warrants and redeemable shares adopted by SPACs helping to inflate their equity.</p>
<p>According to Stanford Law School Securities Clearing House (a collaboration with Cornerstone Research), disgruntled SPAC investors have filed Federal Securities Class Action Lawsuits against 49 SPACs/de-SPACs since the start of 2021 (of which all but one are ongoing), with many of them based on the accounting restatements as well as accusations of making positive statements about business, operations, and prospects that were materially misleading and/or lacked a reasonable basis. This represents almost four times the number of SPAC-related lawsuits filed in 2019 and 2020 combined. In fact, ~ 70% of these lawsuits have been filed over the past year.</p>
<p>The rise in SPAC-related class action lawsuits becomes even more apparent when seen from the perspective of a percentage of total litigation. SPAC-related litigation accounts for approaching 20% of all securities class action suits in the US, up from 1-2% in 2019.</p>
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<p>Of the class action lawsuits filed, there are 48 ongoing cases, of which 47 were filed post de-SPACing (see Figure 8). About one-third of the list of ongoing litigation involves de-SPACs operating in the Automotive sector (predominantly in the EV space), which currently represents the most litigious sector for de-SPACs.</p>
<p>Figure 8: Ongoing SPAC-Related Transaction Lawsuits Filed in 2022 and 2021</p>
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<p>Source: Stanford Law School, WTR Research</p>
<p>With SPACs in the regulatory spotlight and given that 95% of companies de-SPACed since the start of 2021 are trading below their SPAC redemption price, the risk is that there are more class action lawsuits against de-SPACs on the way. With 16 already filed so far this year, we would not be surprised if the number of SPAC-related lawsuits filed in 2022 continues to mount and even exceed the 33 filed in 2021. That should make the legal profession happy if no one else in SPAC Land is (other than disgruntled SPAC/de-SPAC investors).</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


The SPAC IPO market is all but moribund.&nbsp;At the risk of sounding like a broken record, it has been another quiet week on the SPAC IPO front. As a matter of fact, we have not seen a completed IPO for almost two weeks. So far this month, only six IPOs have been priced and as we enter the last week of May, and should there be no further IPO pricings, May 2022 will end up being the slowest month for SPAC IPOs since April 2020 when only five were priced. Meanwhile, the number of new IPO registrations continues to drop and remains outpaced by the number of registration withdrawals/abandonments by a ratio of more than two to one. This leaves the backlog of pending IPOs at 146, which is likely to shrink further.
New deal announcements.&nbsp;New Initial Business Combination (IBC) announcements continue to chug along as approaching deadlines press SPACs into action. We can add another two smallish deals (transaction value under $1 billion) since last week’s SPAC Talk. KludeIn 1 Acquisition Corp. (INKA) is acquiring a privacy-led data intelligence company,&nbsp;Near Intelligence Holdings, while Alpine Acquisition Corp. (REVE) will merge with&nbsp;Two Bit Circus, creators of the world’s first micro amusement parks. These new deals bring the total number of new SPAC IBC announcements to 13 so far in May. We would add that two SPAC liquidations were announced in the past week, which brings the total to six for the year-to-date. As of writing, the number of live SPACs seeking merger partners is 597, dropping below the 600 level for the first time this year, although still above the 2021 year-end figure of 575.
Legal jeopardy.&nbsp;Our SPAC Talk Focus looks more closely at a rising, albeit unwanted, trend in SPAC Land – Litigation. Last year saw a big jump in private lawsuits, a trend that is expected to continue this year given that 95% of de-SPACs completed since the start of 2021 are trading below the SPAC redemption price and ~60% under half of that value.

SPAC STATISTICS



Source: WTR Research
SPAC/DE-SPAC RETURNS




SPAC TALK FOCUS
Legal Jeopardy
If 2021 was a banner year for SPAC sponsors, underwriters and yes, even investors, albeit for a fleeting period in the earlier part of the year, it is the lawyers that are licking their lips with much excitement. Last year’s surge in SPAC IPO activity and de-SPACing transactions, perhaps not surprisingly, roused increased scrutiny from the SEC, leading to an increase in SEC investigations of and enforcement actions against SPAC-related transactions, culminating in the release at the end of March 2022 of comprehensive proposals (currently going through the public comment phase of the process) for regulatory changes that would materially expand the liability regime for SPAC transactions.
The SPAC exuberance of 2021 has also brought with it a mounting number of private lawsuits. Most of these are based on complaints regarding (1) material omissions or misstatements in the proxy statement, which include financial projections for the post-merger company, and (2) conflicts of interest and breach of fiduciary duty. The SEC has reported that accounting restatements in the US hit a 15-year high with 1,470 issuing restatements in 2021; SPACs accounted for 77% of these restatements. Moreover, many of these involved the issue of a completely new set of financial statements rather than just prior period revisions in a new report. The restatements mainly reflected concerns about the accounting treatments of warrants and redeemable shares adopted by SPACs helping to inflate their equity.
According to Stanford Law School Securities Clearing House (a collaboration with Cornerstone Research), disgruntled SPAC investors have filed Federal Securities Class Action Lawsuits against 49 SPACs/de-SPACs since the start of 2021 (of which all but one are ongoing), with many of them based on the accounting restatements as well as accusations of making positive statements about business, operations, and prospects that were materially misleading and/or lacked a reasonable basis. This represents almost four times the number of SPAC-related lawsuits filed in 2019 and 2020 combined. In fact, ~ 70% of these lawsuits have been filed over the past year.
The rise in SPAC-related class action lawsuits becomes even more apparent when seen from the perspective of a percentage of total litigation. SPAC-related litigation accounts for approaching 20% of all securities class action suits in the US, up from 1-2% in 2019.

Of the class action lawsuits filed, there are 48 ongoing cases, of which 47 were filed post de-SPACing (see Figure 8). About one-third of the list of ongoing litigation involves de-SPACs operating in the Automotive sector (predominantly in the EV space), which currently represents the most litigious sector for de-SPACs.
Figure 8: Ongoing SPAC-Related Transaction Lawsuits Filed in 2022 and 2021


Source: Stanford Law School, WTR Research
With SPACs in the regulatory spotlight and given that 95% of companies de-SPACed since the start of 2021 are trading below their SPAC redemption price, the risk is that there are more class action lawsuits against de-SPACs on the way. With 16 already filed so far this year, we would not be surprised if the number of SPAC-related lawsuits filed in 2022 continues to mount and even exceed the 33 filed in 2021. That should make the legal profession happy if no one else in SPAC Land is (other than disgruntled SPAC/de-SPAC investors).
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.

<h2>KEY HIGHLIGHTS</h2>
<div></div>
<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.

SPAC Talk: Limited Choices in a Sea of Potential Targets

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>Backlog of SPAC IPOs is likely to dwindle further.&nbsp;With the environment for SPACs continuing to be highly challenging, there remain 609 live SPACs still searching for merger targets. It is therefore no real surprise to see the pipeline of pending SPAC IPOs continuing to shrink. So far this year 65 SPAC IPO filings have been withdrawn or abandoned, leaving the pipeline of pending IPOs at 181 as of now. This figure represents 60% of the peak number of filings (314) recorded at the end of 2Q21. The backlog will, in all likelihood, continue to dwindle, and more so given that last year’s leading SPAC IPO underwriter, Citigroup, has put a temporary hold on underwriting new SPAC IPOs until it can determine the full extent of the legal obligations and liabilities underwriters like it would incur because of the new SEC proposed rules announced at the end of last month.</li>
<li>More liquidations on the horizon?&nbsp;Liquidations have hitherto been rare events in SPAC land. Only two SPACs have been liquidated since the start of 2021. There has been a noticeable shortening of the timeframe to complete an IBC (initial business combination) since the start of 2021 from two years to about a year or even less. While most SPACs with pending deadlines have sought. and have succeeded in getting, shareholder approvals for extensions, we expect the extent of SPAC over-saturation will increase the pressure for liquidations. As of today, 23 SPACs still searching for targets have less than three months to complete an IBC.</li>
<li>Overfunded trusts—good or bad for sponsors?&nbsp;Over the past several quarters there has been an increasing tendency for sponsors to overfund SPAC trust accounts as an incentive to entice IPO investors. In 1Q22, trust accounts averaged $10.17 per unit at the IPO. In the last quarter, 94% of the SPAC IPOs completed were overfunded by an average of 1.7%. Our SPAC Talk Focus explores whether there is ultimately any value to the sponsor and the SPAC market from overfunding.</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>The Conundrum for SPAC Sponsors of Overfunding Trusts</h2>
<p>One of the emergent features of SPACs over the past year has been the trend in overfunded SPAC cash trusts. A SPAC’s cash trust is ordinarily where the capital that is raised from its IPO is placed, effectively in an escrow account, from which the monies therein can only be disbursed for the de-SPAC process, or to return the capital to the SPAC’s public shareholders, whether as a result of the SPAC’s liquidation should it not be successful in finding a target within the specified period, or as a result of the public shareholders' choice to redeem the shares before the de-SPAC occurs.</p>
<p>Rising redemption rates and the drying up of traditional PIPEs (private investment in public equity) have made financing conditions for SPACs increasingly challenging for sponsors. At the same time, although this more challenging environment has slowed the flow of new SPAC IPOs over the past several months, it has not shuttered the SPAC IPO market. As Figure 1 shows, SPAC IPOs are currently running at 30 per quarter.</p>
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<p>With 609 SPACs still searching for targets as of today, competition among SPACs for funds has become very intense. But, as the adage goes, necessity is the mother of invention, and SPAC sponsors have had to be creative to find alternative financing sources, whether it be the increasing use of convertibles, backstop arrangements, or structured PIPEs with added sweeteners thrown into the mix to incentivize investors. However, the priority for sponsors has been to make sure that there is enough interest to get the SPAC IPO done. To this end, we have seen an increasing tendency for SPAC sponsors to overfund their trust accounts over the past several quarters, typically by up to 2%, and a few by 2.5%-3%. As Figures 2 and 3 highlight, not only has the degree to which new SPACs are being overfunded risen, but there has also been an increasing number of SPAC IPOs that have come to market with overfunded trust accounts. Indeed, more than 90% of the SPAC IPOs that were priced in the past two quarters have brought overfunded trust accounts.</p>
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<p>One might ask how much can overfunding, typically by 2%, help the sponsors? As Figure 1 illustrates, overfunded trusts have not stopped the slowdown in SPAC IPOs, but the SPAC IPO market could, arguably, have been even slower without them. The sponsors are incentivizing shareholders to subscribe to the SPAC IPO with the ability to lock in a minimum return of 2% which, although it may not sound like much of an incentive, would appeal to some investors, as it has for much of the past year been attractive when compared with 10-year US Treasuries.</p>
<p>However, overfunding SPAC trust accounts leaves sponsors with a conundrum. Overfunding trust accounts effectively provides a greater incentive to public shareholders to exercise redemption rights. It reduces the likelihood that the public shares will be trading above the redemption price at the time of the business combination, thereby reducing the likelihood of a de-SPAC transaction. Moreover, this can be exacerbated by the participation of arbitrageurs. The combination of overfunded SPACs and redemption rights creates an attractive arbitrage market in pre-merger SPACs, which potentially attracts post-IPO investors with the incentive to earn an even greater yield when pre-merger SPAC prices trade below $10. Yet the participation of arbitrageurs yields no benefit to the sponsors.</p>
<p>There is another question to ponder. In the current environment in which the 10-year US bond is above 2.5% and rising, the cost to SPAC sponsors will increase further. To what extent will SPAC sponsors be willing to dig deeper into their own pockets to overfund trust accounts to ensure SPAC IPO success in in an oversaturated US SPAC market where the opportunities of completing a business combination are becoming more limited?</p>
<p>Perhaps, making the decision not to overfund trusts will accelerate a much-needed rebalancing of the currently oversupplied SPAC market to the longer-term benefit of sponsors and the SPAC asset class.</p>
<h2>DISCLOSURES</h2>
<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

Backlog of SPAC IPOs is likely to dwindle further.&nbsp;With the environment for SPACs continuing to be highly challenging, there remain 609 live SPACs still searching for merger targets. It is therefore no real surprise to see the pipeline of pending SPAC IPOs continuing to shrink. So far this year 65 SPAC IPO filings have been withdrawn or abandoned, leaving the pipeline of pending IPOs at 181 as of now. This figure represents 60% of the peak number of filings (314) recorded at the end of 2Q21. The backlog will, in all likelihood, continue to dwindle, and more so given that last year’s leading SPAC IPO underwriter, Citigroup, has put a temporary hold on underwriting new SPAC IPOs until it can determine the full extent of the legal obligations and liabilities underwriters like it would incur because of the new SEC proposed rules announced at the end of last month.
More liquidations on the horizon?&nbsp;Liquidations have hitherto been rare events in SPAC land. Only two SPACs have been liquidated since the start of 2021. There has been a noticeable shortening of the timeframe to complete an IBC (initial business combination) since the start of 2021 from two years to about a year or even less. While most SPACs with pending deadlines have sought. and have succeeded in getting, shareholder approvals for extensions, we expect the extent of SPAC over-saturation will increase the pressure for liquidations. As of today, 23 SPACs still searching for targets have less than three months to complete an IBC.
Overfunded trusts—good or bad for sponsors?&nbsp;Over the past several quarters there has been an increasing tendency for sponsors to overfund SPAC trust accounts as an incentive to entice IPO investors. In 1Q22, trust accounts averaged $10.17 per unit at the IPO. In the last quarter, 94% of the SPAC IPOs completed were overfunded by an average of 1.7%. Our SPAC Talk Focus explores whether there is ultimately any value to the sponsor and the SPAC market from overfunding.

SPAC STATISTICS


SPAC/DE-SPAC RETURNS






SPAC TALK FOCUS
The Conundrum for SPAC Sponsors of Overfunding Trusts
One of the emergent features of SPACs over the past year has been the trend in overfunded SPAC cash trusts. A SPAC’s cash trust is ordinarily where the capital that is raised from its IPO is placed, effectively in an escrow account, from which the monies therein can only be disbursed for the de-SPAC process, or to return the capital to the SPAC’s public shareholders, whether as a result of the SPAC’s liquidation should it not be successful in finding a target within the specified period, or as a result of the public shareholders' choice to redeem the shares before the de-SPAC occurs.
Rising redemption rates and the drying up of traditional PIPEs (private investment in public equity) have made financing conditions for SPACs increasingly challenging for sponsors. At the same time, although this more challenging environment has slowed the flow of new SPAC IPOs over the past several months, it has not shuttered the SPAC IPO market. As Figure 1 shows, SPAC IPOs are currently running at 30 per quarter.

With 609 SPACs still searching for targets as of today, competition among SPACs for funds has become very intense. But, as the adage goes, necessity is the mother of invention, and SPAC sponsors have had to be creative to find alternative financing sources, whether it be the increasing use of convertibles, backstop arrangements, or structured PIPEs with added sweeteners thrown into the mix to incentivize investors. However, the priority for sponsors has been to make sure that there is enough interest to get the SPAC IPO done. To this end, we have seen an increasing tendency for SPAC sponsors to overfund their trust accounts over the past several quarters, typically by up to 2%, and a few by 2.5%-3%. As Figures 2 and 3 highlight, not only has the degree to which new SPACs are being overfunded risen, but there has also been an increasing number of SPAC IPOs that have come to market with overfunded trust accounts. Indeed, more than 90% of the SPAC IPOs that were priced in the past two quarters have brought overfunded trust accounts.


One might ask how much can overfunding, typically by 2%, help the sponsors? As Figure 1 illustrates, overfunded trusts have not stopped the slowdown in SPAC IPOs, but the SPAC IPO market could, arguably, have been even slower without them. The sponsors are incentivizing shareholders to subscribe to the SPAC IPO with the ability to lock in a minimum return of 2% which, although it may not sound like much of an incentive, would appeal to some investors, as it has for much of the past year been attractive when compared with 10-year US Treasuries.
However, overfunding SPAC trust accounts leaves sponsors with a conundrum. Overfunding trust accounts effectively provides a greater incentive to public shareholders to exercise redemption rights. It reduces the likelihood that the public shares will be trading above the redemption price at the time of the business combination, thereby reducing the likelihood of a de-SPAC transaction. Moreover, this can be exacerbated by the participation of arbitrageurs. The combination of overfunded SPACs and redemption rights creates an attractive arbitrage market in pre-merger SPACs, which potentially attracts post-IPO investors with the incentive to earn an even greater yield when pre-merger SPAC prices trade below $10. Yet the participation of arbitrageurs yields no benefit to the sponsors.
There is another question to ponder. In the current environment in which the 10-year US bond is above 2.5% and rising, the cost to SPAC sponsors will increase further. To what extent will SPAC sponsors be willing to dig deeper into their own pockets to overfund trust accounts to ensure SPAC IPO success in in an oversaturated US SPAC market where the opportunities of completing a business combination are becoming more limited?
Perhaps, making the decision not to overfund trusts will accelerate a much-needed rebalancing of the currently oversupplied SPAC market to the longer-term benefit of sponsors and the SPAC asset class.
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: The Sponsor’s Conundrum of Overfunding Trusts

KEY HIGHLIGHTS

A look back at 1Q22.&nbsp;The differences between the first quarter of 2022 and the corresponding quarter last year could hardly be starker. While last year’s quarter recorded the highest ever quarterly number of SPAC IPOs priced, 1Q22 saw the lowest number of IPO pricings since 2Q20. That has not prevented a growing oversupply of SPACs in the market. De-SPAC deal announcements have declined since peaking in 1Q21, while the ratio of SPACs searching for targets relative to live IBCs has climbed to almost ~6:1 versus the low of ~3:1 achieved at the end of 2Q21. Meanwhile the shift in sentiment over the past year has been reflected in the surge in redemption rates, with 1Q22 averaging 84% versus just 8% in the year-ago quarter.
Activity remains muted.&nbsp;2Q22 has started in subdued fashion and is continuing the trend of the past quarter, with only one IPO priced in the first six days of April. The backlog of pending SPAC IPOs, currently at 186, continues to fall, which is a positive given the circumstances. Notwithstanding four new deal announcements so far this month, there remain 608 SPACs still searching for targets, including one SPAC, MDH Acquisition Corp. (MDH) which this week cancelled its $959 million merger with digital vehicle protection plan platform Olive Ventures. It remains doubtful that April showers will bring May flowers to SPAC Land this year.
Tighter regulation is coming, but it may not be all bad.&nbsp;Concern about overly optimistic projections made by SPACs has merit with one comprehensive study showing that ~60% of de-SPACs miss their near-term forecasts. This topic is the key element that is being addressed by the SEC Commission’s new proposals unveiled last week. Our SPAC Talk Focus this week looks more closely at the proposals and how they could impact the future development of the SPAC market.

SPAC STATISTICS


SPAC/DE-SPAC RETURNS






SPAC TALK FOCUS
How the SEC’s proposals could impact SPAC Land—it's not all bad
Rose-colored perspectives and red flags
The SPAC cycle that began in 2020 is certainly different from all previous SPAC cycles, not only in terms of the sheer volume of SPACs that have come to market and subsequent de-SPACings, but also in terms of the quality of SPAC sponsors with reputable investor pedigree that have been participating. Yet, SPACs and their sponsors have generally not been able to shed their reputations of doubtful honesty. Indeed, the experience in the last two years is that initial business combinations entered into by SPACs with mostly early-stage private companies have proven to be, more often than not, long on hype and short on delivery, benefiting no one other than the SPAC sponsors and owners of the target company, but certainly not the public shareholders lured into the de-SPAC either pre-merger or post-merger by the hype. As Table 4 indicates, more than 80% of post-merger companies that de-SPACed since the start of 2021 are currently trading below their SPAC IPO prices, and about half of those are trading at greater than 50% of their SPAC IPO values. Against this backdrop, it is perhaps no surprise that the number of class-action lawsuits against SPAC IBCs have been mounting, with 56 to date. Forty-three, or about 75%, have been filed since the start of 2021, and 29, or about 50%, have been filed in the past three quarters (see&nbsp;here).

Many of these lawsuits accuse the defendants of making materially false and/or misleading statements. A common allegation in these class-action lawsuits is that “positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis,” which specifically refer to the often overly optimistic projections presented by SPACs when announcing IBCs. SPACs On announcement of an IBC, the majority (80%) of were found to present projections for four years ahead on average, with approximately one quarter of recent projections extending more than five years. A recent study conducted jointly by the business schools of the University of Washington, University of Michigan, and the University of North Carolina at Chapel Hill, in examining SPAC mergers between 2004 and 2021 and referencing the sample of SPAC mergers (152) with observable post-merger revenue, found that only 35% of IBCs met or beat their projections. This proportion declines for forecasts that are further out. However, the record of nearer term (one year ahead) forecasts leaves a lot to be desired with 58% of the sample missing forecasts and 18% by 25% and more.

The study also compares SPAC projected revenue growth to benchmark samples of IPO firms and matched firms, demonstrating that the SPAC projections are approximately three times larger on average than benchmark firms’ actual revenue growth, with even greater differences for long-term projections. After the merger, firms tended to reduce their use of projections, providing them at statistically similar rates as benchmark firms. Overall, the study concluded that evidence supported concerns that the SPAC merger includes highly optimistic projections. Indeed, we have seen many near-term projection downgrades once the de-SPACing has occurred.
The SEC riposte rewrites the rule book on SPACs
In May 2021, the SEC indicated that it was considering heightened scrutiny of projections in de-SPAC transactions. On March 30, 2022, the SEC released its eagerly awaited proposals to address the concern of overly optimistic projections and other key concerns related to the public interest concerning SPACs. The proposed new rules can be reviewed in full&nbsp;here&nbsp;(Warning: it is a 372-page document). But, in the interests of brevity, and for those who cannot spare the time to wade through this door stopper of a document, let us summarize the key proposals.
De-SPAC Transaction Financial Projections:&nbsp;The proposed new rules would require additional specific disclosures in a de-SPAC transaction with respect to projected financial information, including disclosure of the party that prepared the projections, the purpose for which they were prepared, all material bases and assumptions underlying the projections, any factors that may impact such assumptions, and whether the target company’s management has affirmed the projections to the SPAC. Additionally, projections based on historical measures and operating history would need to be presented with equal or greater prominence as counterparts not based on financial results or operating history.
Related to the use of forward-looking statements including financial projections, and arguably the most significant amendment proposed to the status quo, is the potential elimination of the Private Securities Litigation Reform Act (PSLRA) Safe Harbor from de-SPAC transactions. Should PSLRA Safe Harbor become unavailable for forward-looking statements for filings by SPACs, SPAC sponsors would need to take into consideration the consequent potential liability exposure when deciding whether and to what extent to use projections in connection with de-SPAC and PIPE transactions. However, this is the one proposal, if approved, that does create a conundrum and might ultimately prove counterproductive. Excluding SPACs from the safe harbor liability protections of the PSLRA would threaten to reduce investor information and deal transparency leading to increased litigation with respect to the information that is provided by potentially driving SPACs to use less comprehensive projections or even consider discontinuing the practice of presenting financial projections altogether.
It should be noted that disclosure of financial projections is not expressly required by the federal securities laws, although there are assorted reasons why they are frequently used in de-SPAC transactions. For instance, they may be used to comply with state or foreign corporate law regarding a board’s decision to approve a business combination transaction or as the basis for the agreed consideration for the target company or because projections provide existing and potential investors visibility into the target’s future financial growth, which may be especially attractive to companies that will not be profitable for a few years. Companies going down the traditional IPO route do not typically include financial projections in a registration statement and related prospectus for an IPO because of the liability risks associated with such disclosures. The use of projections for de-SPAC transactions is by virtue of their consideration as merger transactions. The ability to use projections to market de-SPAC transactions has been considered a competitive advantage relative to going public via a traditional IPO process.
Additional New Disclosure Requirements:&nbsp;The new proposals require additional disclosures on SPAC sponsors, their affiliates, and any other SPAC promoters. These disclosures include:

The experience, material roles and responsibilities, and compensation of these parties, as well as an organizational chart that shows the relationship among the SPAC, the SPAC sponsor, and the SPAC sponsor’s affiliates.
Disclosures pertaining to the SPAC’s timeframe to complete a de-SPAC transaction, redemption rights, the compensation of the SPAC sponsor, conflicts of interest, dilution (including a simplified tabular disclosure incorporating a range of potential redemption levels) and, in a de-SPAC registration statement, a statement regarding the fairness of the de-SPAC transaction and related financing transactions.
Potential material sources of additional dilution that non-redeeming SPAC shareholders may experience at different phases of the SPAC lifecycle by electing not to redeem their shares in connection with de-SPAC transaction.
A description of any actual or potential material conflicts of interest between the SPAC sponsor, its affiliates, or the SPAC’s directors and officers, on the one hand, and the unaffiliated security holders, on the other. The SEC document considers different types of conflict but highlights one notable example where the potential conflict of interest stems from the contingent nature of the sponsor's compensation, whereby the sponsor and its affiliates have significant financial incentives to pursue a business combination transaction even though the transaction could result in lower returns for public shareholders than liquidation of the SPAC or an alternative transaction.

While the new proposals do not add a requirement that SPACs obtain a fairness opinion on a pending de-SPAC transaction, they do require an affirmative statement in a de-SPAC registration statement as to whether the SPAC reasonably believes that the de-SPAC transaction and any related financing transaction are fair or unfair to public investors and whether the SPAC has received any outside opinion or appraisal relating to the fairness of such a transaction. There is also a new requirement that the SPAC and the target company co-register the de-SPAC registration statement.
Underwriter Liability:&nbsp;Investment banks involved with de-SPAC transactions do not typically conduct the same level of due diligence as they would for a traditional IPO. The SEC’s new proposal would effectively expand statutory underwriter liability would increase the underwriter’s due-diligence obligations in the case of de-SPAC transactions. This might have the effect of either discouraging investment banks from taking on new de-SPAC transaction engagements given the heightened risks presented or raise the costs associated with de-SPAC transactions as underwriters demand higher fees to compensate for the additional work. In a traditional IPO, the underwriters typically receive a discount of around 6% to 7% of the gross proceeds, which is paid at the closing of the IPO. Today, in a SPAC transaction, the underwriters will typically receive a discount of 5.5% of the gross proceeds, but only 2% of the discount is paid at the closing of the IPO. The balance of the discount is deposited in the SPAC’s trust account and is deferred and payable to the underwriters at the closing of the IBC. If a business combination is not consummated, the deferred 3.5% is not paid to the underwriters, but is instead used with the rest of the funds in the SPAC’s trust account to redeem the public shares. The SEC announcement has already had some impact, with Citigroup, last year’s leading SPAC bookrunner, reported to have temporarily paused IPOs of new US SPACs until more clarity on the potential legal risks posed by recently proposed rules is forthcoming.
The bottom line
The proposed rules will be open for public comment until May 31, 2022 or the date that is 30 days after their official publication in the Federal Register. Following the public comment period, the SEC staff will consider appropriate revisions to the proposed rules before proposing final rules that will be subject to a subsequent vote by the SEC Commissioners who had voted 3-1 in favor of the draft proposals. According to at least one law firm, Sidley Austin, a considerable number of comments is anticipated, as well as likely legal challenges to the final rules, making it unlikely that any final rules would be adopted prior to 4Q22. Other law firms, such as Sullivan &amp; Cromwell, expect that after considering public comments, the SEC will proceed expeditiously to adopt the final rules and anticipate that comments will note the importance of providing for a transition period, which might encourage another burst of de-SPAC deal announcements ahead of the adoption of the final proposals. However, with more than 600 SPACs still searching for targets, the adoption of the proposed rules could result in far more liquidations than we have seen to date. Only four SPACs have been liquidated
Concerns that adoption of the proposed rule changes will reduce the advantages of going public through a de-SPAC rather than a traditional IPO may be legitimate. However, we do not expect the proposed tighter regulations to shutter the SPAC market as some have suggested. These rules change little with respect to one major advantage SPACs have over traditional IPOs, that is the potential to cement key strategic partnerships with SPAC sponsors to the benefit of the development of the target company. The de-SPACing process has another advantage in that it can also provide the target company with the ability to negotiate its valuation face-to-face with a single counterparty, whereas valuations for traditional IPOs are set by underwriters and there is a book-building process with institutional investors through a roadshow, with changing investor sentiments and market conditions often influencing pricing.
As the experience of the past year demonstrates with de-SPAC valuations plummeting, there are clearly things that have to be fixed in the de-SPACing process. While there may be questions about some of the proposals put forward by the SEC commission, overall, we think the measures proposed by the SEC Commission should work to the benefit of the SPAC asset class by raising the bar in terms of the quality of assets being targeted for de-SPACing, even if it means a lower volume of SPACs coming to the market than we have seen in the past two years.
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: Removing Those Rose-Colored Glasses

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>Backlog of SPAC IPOs continues to contract.&nbsp;So far in March, filing withdrawals have outpaced new filings by a ratio of 2.75:1. The number of pending SPAC IPOs (193) is the lowest since February 2021 when SPAC euphoria was at or near its peak. But 608 SPACs are still searching for targets (vs. ~350 in February 2021), and it is taking twice as long for SPACs to find targets than it did a year ago. The competition among SPACs to find deals remains very intense, so we would expect the backlog of SPAC IPOs to continue to contract. Surprisingly, there has been only one SPAC liquidation recorded YTD, with a much bigger number gaining approvals for timeline extensions.</li>
<li>Increased deal activity.&nbsp;After a slow start to the month, there was a marked increase in deal activity in the past week. Between March 17 and 23, eight new deals were announced, with only one deal cancellation. It’s been a while since we have seen as many new deals announced within one week, so that is encouraging. Moreover, five of those deals are of reasonable size, with transaction values more than $1 billion. Activity has also returned on the de-SPACing front with three de-SPACs completed in the past week and all with transaction values of more than $1 billion: PGRU ($1.35 billion), FRGE ($1.61 billion), and ALLG ($2.65 billion).</li>
<li>The low float squeeze phenomenon.&nbsp;The surge in redemptions by SPAC IPO shareholders has created an interesting phenomenon. Half the companies that have de-SPACed YTD have experienced significant squeeze rallies within a short period even though the majority had not gained much traction when the deals were initially announced. Comparisons are made with the meme stock trade, a classic short squeeze which only happens when the stock has high short interest. But a de-SPAC squeeze often occurs without a high short interest. The low float squeeze phenomenon is the subject of this week's SPAC Talk Focus.</li>
</ul>
<h2>SPAC STATISTICS</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/119/original/image_97345100961648168617770.png?1648168619" class="editor-image img-responsive" data-smartkarma-image-id="265119"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/120/original/image_67496043071648168638015.png?1648168639" class="editor-image img-responsive" data-smartkarma-image-id="265120"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/121/original/image_51192341381648168652176.png?1648168652" class="editor-image img-responsive" data-smartkarma-image-id="265121"></figure>
<p>Source: WTR Research</p>
<h2>SPAC/DE-SPAC RETURNS</h2>
<p>Table 1: Live IBCs (Initial Business Combinations)—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/122/original/image_41103092191648168689760.png?1648168691" class="editor-image img-responsive" data-smartkarma-image-id="265122"></figure>
<p>Source: WTR Research</p>
<p>Table 2: Top 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/123/original/image_988019357101648168713749.png?1648168716" class="editor-image img-responsive" data-smartkarma-image-id="265123"></figure>
<p>Source: WTR Research</p>
<p>Table 3: Bottom 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/124/original/image_313362690111648168743367.png?1648168745" class="editor-image img-responsive" data-smartkarma-image-id="265124"></figure>
<p>Source: WTR Research</p>
<p>Table 4: De-SPACs—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/126/original/image_53523138121648168825869.png?1648168828" class="editor-image img-responsive" data-smartkarma-image-id="265126"></figure>
<p>Source: WTR Research</p>
<p>Table 5: Top 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/127/original/image_9469792131648168857584.png?1648168860" class="editor-image img-responsive" data-smartkarma-image-id="265127"></figure>
<p>Source: WTR Research</p>
<p>Table 6: Bottom 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/128/original/image_600159595141648168884886.png?1648168887" class="editor-image img-responsive" data-smartkarma-image-id="265128"></figure>
<p>Source: WTR Research</p>
<h2>SPAC TALK FOCUS</h2>
<h2>SPACs and the Low Public Float Phenomenon</h2>
<p>Last week, we looked at the ramifications of the high SPAC shareholder stock redemption rates from a de-SPAC financing perspective, but there is another consequence of high SPAC stock redemptions that has been a topic of conversation over the past six months or so. This phenomenon is known as the low float squeeze. Over this period, we have seen some evidence of this occurrence, with the majority of the SPACs not having gained much pre-merger traction in the wake of deal announcement several months prior. Simply put, the very high redemption rates that have occurred in the past several months have significantly reduced the public float of those de-SPACs that have come to market (floats which in many instances were not that large on a no-redemption basis to begin with) creating illiquidity in the shares and a high level of volatility in the early trading lifecycle of those de-SPACs.</p>
<p>In addition to high redemption rates, the low public float will typically be compounded by SPAC founder shares, PIPE investors, and existing target company shareholders usually being locked up from trading for a certain period following the de-SPACing. Mostly, volatility has been on the upside initially and is generally a replication of what has been happening with the so-called meme stocks. In the case of de-SPACs, it may be a combination of buyers chasing very limited float and short sellers (typically hedge funds) looking to cover their positions as the stock rises. Unlike meme stocks, de-SPAC squeezes are not dependent on having a high short interest. In fact, in most of the de-SPAC squeezes, short interest has been fairly negligible.</p>
<p>SPACs with high option activity and those trading below their IPO values around the time of their merger votes tend to be harbingers for a post de-SPAC low float squeeze. The squeeze rallies can be fast and furious and can also be rapidly reversed. For fundamentally driven de-SPAC investors, it may pay to wait until the dust settles. The table below highlights that half of the 26 de-SPACs completed so far this year have experienced squeeze rallies of 55% and much more within a matter of weeks. At the top of the list, ISPO and CPTN, both de-SPACed last month, saw their values increase more than tenfold within just five trading days only to lose all those gains before the end of March.</p>
<hr>
<p>Table 7: Beware of the Low Float Squeeze</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/129/original/image_629244116151648168928844.png?1648168931" class="editor-image img-responsive" data-smartkarma-image-id="265129"></figure>
<p>Source: WTR Research, Yahoo Finance</p>
<h2>DISCLOSURES</h2>
<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

Backlog of SPAC IPOs continues to contract.&nbsp;So far in March, filing withdrawals have outpaced new filings by a ratio of 2.75:1. The number of pending SPAC IPOs (193) is the lowest since February 2021 when SPAC euphoria was at or near its peak. But 608 SPACs are still searching for targets (vs. ~350 in February 2021), and it is taking twice as long for SPACs to find targets than it did a year ago. The competition among SPACs to find deals remains very intense, so we would expect the backlog of SPAC IPOs to continue to contract. Surprisingly, there has been only one SPAC liquidation recorded YTD, with a much bigger number gaining approvals for timeline extensions.
Increased deal activity.&nbsp;After a slow start to the month, there was a marked increase in deal activity in the past week. Between March 17 and 23, eight new deals were announced, with only one deal cancellation. It’s been a while since we have seen as many new deals announced within one week, so that is encouraging. Moreover, five of those deals are of reasonable size, with transaction values more than $1 billion. Activity has also returned on the de-SPACing front with three de-SPACs completed in the past week and all with transaction values of more than $1 billion: PGRU ($1.35 billion), FRGE ($1.61 billion), and ALLG ($2.65 billion).
The low float squeeze phenomenon.&nbsp;The surge in redemptions by SPAC IPO shareholders has created an interesting phenomenon. Half the companies that have de-SPACed YTD have experienced significant squeeze rallies within a short period even though the majority had not gained much traction when the deals were initially announced. Comparisons are made with the meme stock trade, a classic short squeeze which only happens when the stock has high short interest. But a de-SPAC squeeze often occurs without a high short interest. The low float squeeze phenomenon is the subject of this week's SPAC Talk Focus.

SPAC STATISTICS



Source: WTR Research
SPAC/DE-SPAC RETURNS
Table 1: Live IBCs (Initial Business Combinations)—Key Stats

Source: WTR Research
Table 2: Top 5 Live IBCs by Share Price

Source: WTR Research
Table 3: Bottom 5 Live IBCs by Share Price

Source: WTR Research
Table 4: De-SPACs—Key Stats

Source: WTR Research
Table 5: Top 5 De-SPAC Performers by Share Price

Source: WTR Research
Table 6: Bottom 5 De-SPAC Performers by Share Price

Source: WTR Research
SPAC TALK FOCUS
SPACs and the Low Public Float Phenomenon
Last week, we looked at the ramifications of the high SPAC shareholder stock redemption rates from a de-SPAC financing perspective, but there is another consequence of high SPAC stock redemptions that has been a topic of conversation over the past six months or so. This phenomenon is known as the low float squeeze. Over this period, we have seen some evidence of this occurrence, with the majority of the SPACs not having gained much pre-merger traction in the wake of deal announcement several months prior. Simply put, the very high redemption rates that have occurred in the past several months have significantly reduced the public float of those de-SPACs that have come to market (floats which in many instances were not that large on a no-redemption basis to begin with) creating illiquidity in the shares and a high level of volatility in the early trading lifecycle of those de-SPACs.
In addition to high redemption rates, the low public float will typically be compounded by SPAC founder shares, PIPE investors, and existing target company shareholders usually being locked up from trading for a certain period following the de-SPACing. Mostly, volatility has been on the upside initially and is generally a replication of what has been happening with the so-called meme stocks. In the case of de-SPACs, it may be a combination of buyers chasing very limited float and short sellers (typically hedge funds) looking to cover their positions as the stock rises. Unlike meme stocks, de-SPAC squeezes are not dependent on having a high short interest. In fact, in most of the de-SPAC squeezes, short interest has been fairly negligible.
SPACs with high option activity and those trading below their IPO values around the time of their merger votes tend to be harbingers for a post de-SPAC low float squeeze. The squeeze rallies can be fast and furious and can also be rapidly reversed. For fundamentally driven de-SPAC investors, it may pay to wait until the dust settles. The table below highlights that half of the 26 de-SPACs completed so far this year have experienced squeeze rallies of 55% and much more within a matter of weeks. At the top of the list, ISPO and CPTN, both de-SPACed last month, saw their values increase more than tenfold within just five trading days only to lose all those gains before the end of March.

Table 7: Beware of the Low Float Squeeze

Source: WTR Research, Yahoo Finance
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.

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Dividend (Yield)

SPAC Talk: Legal Jeopardy in SPAC Land

KEY HIGHLIGHTS The SPAC IPO market is all but moribund. At the risk of sounding like a broken record, it has been another quiet week on the SPAC...

Water Tower Research

SPAC Talk: Limited Choices in a Sea of Potential Targets

KEY HIGHLIGHTS Goldman Sachs joins Citi in SPAC pause. It has been reported that Goldman Sachs has paused new SPAC offerings and will also stop...

Water Tower Research

SPAC Talk: The Sponsor’s Conundrum of Overfunding Trusts

KEY HIGHLIGHTS Backlog of SPAC IPOs is likely to dwindle further. With the environment for SPACs continuing to be highly challenging, there remain...

Water Tower Research

SPAC Talk: Removing Those Rose-Colored Glasses

KEY HIGHLIGHTS A look back at 1Q22. The differences between the first quarter of 2022 and the corresponding quarter last year could hardly be...

Water Tower Research

SPAC Talk: Feeling The Squeeze

KEY HIGHLIGHTS Backlog of SPAC IPOs continues to contract. So far in March, filing withdrawals have outpaced new filings by a ratio of 2.75:1. The...

Water Tower Research