One of the poorest performing groups in recent months has been SPACs. As so often happens on Wall Street, there was a rush to take advantage of a hot theme, resulting in an oversupply of weak deals. As a result, there are still hundreds of 'bank check' companies out there that are looking for deals that may never see one.
Many of the companies that do have deals continue to languish at the redemption value of around $10 because of arbitrage pressure that keeps them pinned down regardless of whether they have a good deal or not. As a result, there is a tremendous amount of dead money in the SPAC sector, but there have been some recent signs that the group is attracting interest.
In the last several weeks, there has been some better action in stocks that are 'de-SPACed'. That means they have deals done and are already approved. In addition, there is no longer any redemption protection, so the stocks are not tied to the $10 NAV. A good example of one recent de-SPAC is Clover Health (CLOV) which caught the attention of social media and blasted higher.
There were also several de-SPACs that are being added to the Russell indices that perked up this week. Golden Nugget Online Gaming (GNOG) and Canoo (GOEV) are good examples.
One idea some traders are looking at right now is buying SPACs after they lose the $10 redemption. They are more risk for holders once the redemption protection disappears, but it also eliminates the arbitrage that keeps the stocks pinned down. One stock I will be watching is Forum Merger III (FIII) which is merging with EV maker Electric Last Mile. A vote to approve the deal will be held on June 24. FIII has been pinned near its NAV of $10 for months, so it will be interesting to see how it trades if the deal is approved.
There are many other SPACs with similar circumstances, and once they are de-SPACed, they will have to trade on their own merits. Many SPACs are going to languish and will disappear, but there will be some very good deals as well. I'll be monitoring the action in the names as the deals are approved, and the NAV protection disappears.
