For the most part, the SPAC pendulum has swung hard the other way. Last summer, every deal experienced a strong pop. It didn't matter if it was related to an electric vehicle (EV) company or a Little Susie and Johnny's lemonade stand. Now, even what appear to be attractive deals aren't getting love.
While frustrating for those who, like myself, used some SPACs as a cash replacement vehicle hoping for a home run here or there, it should create some longer-term opportunities.
Mudrick Capital (MUDS) is a perfect example. The SPAC could be bought between $10.60 and $10.70 without problem on Friday. While that's a premium to the roughly $10 cash basis, a buyer already knew they were picking up a company with a strong core in collectables, a market that continues to be red hot plus one that has the benefits of a confectionary business. I like to refer to something like that as a cash flow side hustle.
The wildcard, one well known and something several of us have discussed, is the foray into NFTs. Topps, the company MUDS is buying, experimented in this last summer with its Garbage Pail Kids IP. Today, they announced they would be debuting Baseball Card NFTs on April 20th, selling 50,000 standard packs and 24,090 premium packs. If they sell out, and I see the likelihood as very high, the company will gross $2.659 million. This is something that could suddenly turn the current financial model on its head. If Topps is able to generate an additional $20 to $30 million via NFTs, the current deal financial projections on both the top and bottom line could be understated 5% and 20%, respectively. Based on the current April 20th drop, that would be one drop per month with similar metrics, something I see as easily accomplished.
Another deal that caught my eye is Soaring Eagle Acquisition (SRNGU) pursuing Ginkgo Bioworks. Ironically, when I first saw the headline, I was disappointed because I only saw Ginkgo Bioworks contemplating going public via a SPAC and my initial reaction was, "Dang, I wish I owned that SPAC." A few seconds later, I realized I did already own it as SRNGU and was one of the few I held.
The initial concerns have been the $20 billion potential valuation. Both Rev Shark and I have talked about if Ginkgo Bioworks went public via an initial public offering (IPO), it probably would have priced $12 billion to $15 billion, then doubled on the open. I doubt we would have heard a peep about it being overvalued then, but we have to understand the market we're in currently. Every SPAC deal will be heavily scrutinized, however, that presents opportunity.
Ginkgo Bioworks is a long-term name I want to own. Last year, I consulted for a smaller company competing in the space. Ginkgo was the gold standard. Some may look at this and think it is just a synthetics cannabinoid play. While many cultured/synthetics plays start in that direction, it was just the low hanging fruit in a potential huge addressable market. Fermentation of naturally occurring organisms will likely play a huge role in feeding the world moving forward. No, SRNGU isn't going to squeeze, but I view this as a long-term buying opportunity for a biotech component of a portfolio. There's no rush to acquire shares all at once, but I continue to pick up a few shares here and there, aiming to make SRNGU about 2%-3% of my portfolio.