Over the last two weeks we have seen a lot of the euphoria in the SPAC market die down as the Nasdaq retreats from all time highs. This is completely understandable as several merger deals have looked lackluster or had valuations that were not very realistic. This lumped together with the over 300 blank-check companies currently trading has made this a much harder market to trade.
But I’m viewing this more as a major and needed reset giving us the ability to get in on hot companies that are being lumped in with the broader SPAC market. On average the SPAC market was trading at a 25% premium and that has been cut back to under 10%. While stock prices have dropped, more money is in this market than ever before and this just means we need to do our due diligence instead of going into deals blindly and waiting for a pop.
Right now, those 300+ SPACs have over $100 billion in capital looking to merge with private companies. Not just that, but even some of the current mergers are trading down near their $10 NAV presenting a great time to acquire shares.
Just look at Forum Merger III Corp. (NASDAQ: FIII), which is merging with ELMS. They are providing last mile EV delivery trucks and already have pre-orders from Walmart, FedEx and Best Buy. This is very different from the SPACs that might not produce revenue for years.
I’ve recently been digging into SPACs with strong management near NAV and one company shot to the top of my list.
Health Assurance Acquisition Corp. (NASDAQ: HAAC) has had a rough week and is now trading around almost 30% down from its peak, even dropping below where it went public at. There is a lot of waste in our current healthcare system and there is a digital transformation happening looking to solve many of the problems that exist today. HAAC was created to acquire a company that is an emerging leader in the space.
One thing I really like about this SPAC is how they are structured. Unlike a traditional SPAC, this one uses performance-based incentives so that the sponsor is tied to long term business performance versus a big payout right from the start.
When looking at investing in SPAC’s, I always look at the management. Knowing the management can give insight into their business network and what kind of company they might acquire. HAAC is lead by Hemant Taneja, a managing director at General Catalyst and has been in early investor in companies like Snap, Stripe, Color, and Livongo. He is also the founder of Commure, a company that has partnered with health care systems to modernize software infrastructure.
Two big names that popped out to me were Glen Tullman and Jennifer Schneider. Glen was the Executive Chairman and Founder of Livongo, the digital health company transforming the monitoring of chronic conditions and Jennifer was the President of Livongo. Their company was recently acquired by Teladoc for almost $20B.
There are also big investors like Millennium Management and Blackrock who hold large positions in the SPAC.
With the pandemic spurring innovation in the technology and healthcare space, there is no better time to look at a SPAC just like this. Annual healthcare spend is approaching $4 trillion and as mentioned there is a lot of waste in this industry.
The sponsors are not just looking at bring another company public but looking to add value and bring a transformative company to the public market. With a large network and expertise in the healthcare space, HAAC could bring us one of the most exciting healthcare technology mergers of the year.
Not only that, but we’re seeing equally exciting moves out of another highly innovative form of public investment. I’m talking about small cryptocurrencies designed with a specific purpose in mind. Just like SPACs, they bypass the traditional stock market process and all of its inefficiencies.
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