Well this probably would’ve been a good week for me to take a vacation as IPO activity
is temporarily slowing down as we head into Labor Day. But since I didn’t…I’m gonna
try my best to make this week’s episode interesting as we’ll discuss the new SEC
ruling on Direct Listings from last week and we’ll take a deeper look into some popular
SPACs who have recently announced mergers. Welcome to IPO This Week for the week of August
31st, 2020. Welcome back to Healthy, Wealthy, and Wise;
I want to give a shout out to everyone in the community and thank each and every one
of you for checking in each week. I also want to thank you for celebrating with me during
our first live stream last week on the news of our community powering past the 1,000 subscriber
mark. I really appreciate those of you who were able to jump on and make the experience
so enjoyable for me; it really energized me to want to keep improving what this channel
can become. You guys had lot of good ideas for enhancing the community and I'm sure we'll
start implementing some in the not too distant future. Unfortunately during the stream, we
did have some connectivity issues but I’ll try tweaking some settings for next time,
because we’ll definitely have some more live streams in the future. Whether you were
on live or watched the playback, hopefully you got a better idea of who I am, which at
the end of the day is really just being someone who is like you: interested in talking investment
opportunities and always looking to get better at it. Now if you’re new here, my name is
Kevin and every week we talk about all the companies going public, the latest SPACs hitting
the market, and all the lockup and notable quiet period expirations. If you’re interested
in these things, well consider this your formal invitation to join the community…and all
you have to do is push that little red subscribe button.
So let’s get to our normal business first and talk about the new IPOs coming out this
week. Now don’t click away, but as of right now, there aren’t any currently scheduled
to start trading this week. If that changes, I’ll definitely post an update for you.
Instead, today I’ll talk about the new SEC ruling on direct listings of IPOs and what
that could mean for companies looking to go public in the future. But this week aside,
don’t think for a minute that IPOs are slowing down, in fact, this really is just the calm
before the storm, as we have quite a few in the pipeline coming up this fall that I listed
for you at the beginning of last week’s live stream; if you missed it, you can check
out the replay and listen to me go over the list and overview of each company starting
around the 4 minute mark. Next up, new SPACs…and…ditto, nothing
on the table right now as of this recording. Seriously, don’t click away…just stay
with me! However while I don’t have any new SPACs, I will talk about some of the current
ones of interest that recently announced their merger targets; we’ll get to those in just
a bit. But sticking with our routine, let’s go
over this week’s upcoming lock-up expirations where we have GFL Environmental, ticker GFL,
who has a lock-up period ending on August 31st. And then we also have 2 notable quiet
periods ending on the 31st, Rocket Companies, ticker RKT, and BigCommerce, symbol BIGC,
2 companies that have had a lot of interest since going public a few weeks ago. We spent
quite a bit of time on Rocket, so if you’re interested, you can check out a Rocket Companies
playlist I have for you. So now that we’ve covered what we always
do on this show… which went a lot quicker than normal!, before we spend most of our
time talking about SPACs, which I know many of you really want to hear more about, I do
want to talk a little bit about last Wednesday’s SEC ruling that actually could impact if companies
continue to go the SPAC route. And that is that the SEC approved a new type of direct
listing where companies can simultaneously go public and raise cash from public market
investors. Previously, companies doing direct listings only allowed existing private shareholders
to sell stock to public investors. This change was something that the New York Stock Exchange
sought as the ruling now allows companies to issue new shares through direct listings,
creating a cheaper alternative to raise capital versus the traditional initial public offering.
It's been estimated among experts that this type of listing could save a company upwards
of 40% from costs associated with underwriting fees from banks.
Aside from saving money, there is a lot of thinking out there that this could take a
significant bite out of the interest in the hot SPAC market because it provides similar
advantages where companies can avoid some of the scrutiny that goes with a traditional
IPO plus they also can skip the roadshow process which involves the promotion or sales pitch
by the underwriters and the company's management team to potential investors before going public.
The one thing that could damper some companies’ enthusiasm for the direct listing option is
that it would be public investors—not institutional investors or big banks—that would determine
the value of a company's shares from the outset and that could lead to more volatility in
the price, meaning it might be more difficult to predict how much money you can raise by
not having the underwriting banks involvement with analysis or without institutional support
before public trading begins. And then from the investor side, there could
be concerns that the new rules would weaken investor protections, which could include
a lesser quality of detailed information available than what is required for a traditional IPO.
Considering the pros and cons of the ruling, it will likely take some time to see if direct
listings become more common, because as of right now, they’re fairly rare…and that's
mostly because only well-capitalized companies have been able to go that route since they
didn’t need to raise additional money. Now with the ability to save underwriter fees
and raise new capital, I’m guessing we’ll see more direct listings, but as to how many,
that’ll still need to be determined. Regardless of how it plays out, there’s
no question there is a ton of interest in SPACs right now so let’s talk about a few
popular ones that are out there. As you know, we just started covering SPACs on the channel
and it’s not an area that I personally focused on myself in the past. But due to their popularity
and interest from many of our subscribers, I’m looking to try and help share some good
information with you, so hopefully this is another step into that direction. Up until
this point, we’ve been only talking about the new ones coming out each week, but today,
I wanted to talk about some of the interesting ones that have already been trading and have
just recently announced their merger targets. First up, we have Software Acquisition Group,
symbol SAQN, who announced a merger deal with CuriosityStream on Aug. 11 that had an equity
value of $512 million. The company offers a subscription service that streams only factual
programming, such as documentaries. The company has over 13 million subscribers in over 175
countries where it costs $19.99 annually, unless you buy it on Amazon Prime, where you
can get it for $2.99 per month. Looking at the chart, since the announcement of the merger,
the stock really hasn’t done anything, if anything it’s gone slightly down.
In a good article by Mark Hake published on Yahoo Finance, he suggests that the stock
is very undervalued at today’s price. By doing some simple estimates, he reasons that
13 million people are paying $19.99 annually which results in revenue of $260 million annually.
At 10 times revenue that gives it a valuation of $2.6 billion. Since Software Acquistions
stock today has a market value of just $186.5 million, he is saying that this implies the
stock could rise 14 times. And even if at just five times revenue, the stock would rise
7 times. It’s interesting when you look at what he
is saying. From the valuation perspective, it makes sense. So why hasn’t it jumped
since the announcement? My guess, just a guess…you guys know I’m not a professional stock analyst
so these are just my personal thoughts and not to acted on…but my guess is that announcing
a company that sells documentaries didn’t excite investors. And that may be due to perceptions
that this type of programming can be found in a lot of places that you don’t have to
pay for, such as public broadcasting or even here on YouTube. And for people with traditional
cable bundles, is there anything about CuriosityStream’s programming that differentiates from what
is available in their current bundle that would compel people to pay for another service?
And for the cord-cutters, the streaming options continue to expand greatly, so is this type
of service that will continue to hold onto customers with the growing list of competitors?
I don’t know, as I’ve never tried the service, but that’s how I perceive it, and
if a lot of people are thinking like me, they’re not even going to give it a try, no matter
how great their product might be. However, if the company markets well and provides value
that keeps the subscriber base at least steady, and optimally grows it, then the analysis
by Mark Hake shows a lot of upside in the stock price. But in an increasingly competitive
market of streaming options with a product that might be considered stodgy, for lack
of a better word, it may not bring the interest to drive the stock, and if churn is high and
subscriber growth doesn’t happen, it could sink it. Once the deal closes in the 4th quarter,
the stock will be listed on the Nasdaq under the new symbol CURI.
Next up we have Hennessey Capital Acquisition Corp IV, ticker HCAC, who on August 18th announced
a deal with merger target, Canoo, an Electric Vehicle Manufacturer. Once the deal closes,
the new symbol will be CNOO. In the SPAC world, a lot of the hype has been in the EV industry.
To get a better understanding of Canoo, let’s take a look at what the company brings to
the EV market. According to their website, Canoo has designed a modular skateboard platform
built to deliver maximum vehicle interior space that is adaptable to support a wide
range of vehicle applications for both business and consumers. Canoo’s skateboard architecture
– a unique, self-contained, independently drivable rolling chassis – directly houses
all of the most critical components of an EV. On your screen, you see the distinct look
that their product has. Canoo states that their consumer go-to-market strategy capitalizes
on changing consumer preferences to deliver a month-to-month, commitment-free, subscription-based
business model. With a single monthly fee and no upfront payment, Canoo members enjoy
the benefits of an all-inclusive experience that, in addition to your own canoo vehicle,
includes maintenance, warranty, registration and access to insurance and vehicle charging.
So let’s see what Canoo can bring the Hennessey investors. In the same article by Mark Hake
that I referenced with Software Acquistion, he states that the company projects 2024 revenue
of $1.43 billion and its first profit at $188 million. Canoo expects to build 10,000 canoo
vehicles in 2022, rising to 50,000 in 2024. At the time of the article, he stated that
there were 37.5 million shares outstanding, so assuming that hasn’t changed, then as
of last Friday’s closing price of $10.85, the SPAC has a market value of $406.9 million.
However, according to Hake, there are 30 million warrants outstanding that have an exercise
price of $10, and so they are not “in-the-money” from an options perspective.
What I like about his article is how he attempts to estimate what will happen with the stock.
Right now, he believes its present market cap is about $705 million, even though the
warrants would bring in $300 million if exercised. The company has announced an additional $300
million from a private-investment-in-public equity deal at $10 per share. This results
in effectively about 87.5 million shares outstanding. That gives Hennessey stock a $914 million
market cap on a “see-through” basis. Moreover, with its $600 million in capital
raised, the effective market cap is about $1.5 million. Now he estimates if this is
an adequate valuation and determines that it probably isn’t because even if we gave
the stock a 3 times revenue multiple, or $4.293 billion, and discounted it by 15% for 2 years,
the market value should be $3.25 billion. That is 114% higher than today’s price.
By his calculations, Hake believes that the Hennessey Capital stock is worth at least
$22.38 per share, over twice its present price. And that a higher revenue multiple, the stock
is worth even more. I think it’s interesting to see how valuations can be estimated and
might be of interest to the community. This article looks at 3 more companies we’re
not going to talk about here today, so definitely check it out by clicking on the link I have
in the description. The last SPAC I’ll talk about today is Gores
Metropoulos, ticker GMHI which last week announced a merger with Luminar, the lidar startup that
was founded in 2012, but operated in secrecy until publicly announced in early 2017. The
announcement of the merger resulted in a post-deal market valuation of $3.4 billion.
To tell you more about Luminar, they are said to be the leading autonomous vehicle and lidar
technology company for consumer cars and trucking and have partnered with 7 of the top 10 global
automakers. Lidar measures distance using laser light to generate a highly accurate
3D map of the world around the car. The sensor is widely considered critical to the commercial
deployment of autonomous vehicles. Their technology will be used to deploy an
automated driving system for highways. Most new cars sold today include a lot of sensors
such as cameras and radar to help power modern conveniences like automatic emergency braking
and lane-keeping assist. Very few automakers, however, sell cars with the high-powered laser
sensor known as LIDAR, because most LIDAR systems are super expensive. But in announcing
a partnership with Volvo earlier this year, the automaker said Luminar can produce the
sensors cheap enough to justify installing them on its consumer vehicles — which it
says will allow these cars to drive themselves. Luminar’s Iris lidar sensors — which TechCrunch
has described as about the size of a really thick sandwich — will be integrated in the
roof of Volvo's production vehicles beginning in 2022.
According to the company’s 25 year old CEO, and founder Austin Russell, Luminar's strategy
is said to be focusing in the nearer term on application of lidar in production vehicles,
while still working with companies seeking to commercialize robotaxis, although his belief
is that is a little further down the road. Upon announcing the merger, the SPAC says
Russell developed the only lidar technology that meets the most stringent safety specifications
of carmakers, and that he did so from scratch and, by doing so, is well-positioned to dominate
the autonomous landscape. Did I mention he's only 25 years old now? So he was only about
17 when he started on this… Wow! Makes me feel like I didn't really apply myself as
a teenager. Luminar is the latest startup — and actually
second lidar company — to go the SPAC route this year instead of the traditional IPO path.
In June, Velodyne Lidar struck a deal to merge with special purpose acquisition company Graf
Industrial Corporation, with a market value of $1.8 billion.
Once the transaction closes, Luminar will maintain its name and be listed on Nasdaq
under the ticker symbol LAZR. The deal is expected to close in the fourth quarter of
2020. So, there you go…a little less traditional
episode of the show, but I hoped you liked it. And if you did, you know what you need
to do. I have some ideas for my next video, but I’m not ready to share it yet…no,
it’s not because I’m wanting to seem mysterious and secretive, I’m just not sure which way
I want to go with it. Either way, if you have your notification bell turned on, you’ll
know when the next video comes out as soon as it does and you can see what it’s all
about then. And once again, if you’re new to the channel or just an occasional visitor,
we’d love to have you join the community, afterall, it’s free. So as we begin to head
into September, I hope you have a great start to your week ….thank you again for watching
and, until next time, have a great day!