SPAC Pair Trade (NYSE:DMYIU)

Summary

Short the SPAK SPAC ETF.
Long the first public quantum company.
Low risk / high potential reward.
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Short the SPAK SPAC ETF

In January I wrote that if you own the (SPAK) SPAC ETF you should sell it,

Last March, a diversified basket of SPACs yielded almost 10% to their trust value, never mind their (spectacular, as it turns out) equity upside. Their warrants have since more than tripled. But today a diversified basket of SPACs trade at over a 20% premium to NAV, many as of their first day in the secondary market. Great news for any of us participating in the IPO pop, but pricy for subsequent buyers. This ETF puts most of its capital in deSPACed equities. It is convenient, but dangerous.

If you don’t own it, it is a great short against any SPAC longs. It is one of my favorite hedges for 2021’s reopening.

Long the first public quantum company

dMY Technology Group, Inc. III (DMYIU) has my favorite SPAC sponsor; they have been wildly successful in both corporate M&A and in previous SPACs. After a big success with Glu (GLUU) up more than 9x, DMY’s first SPAC up over 80%, and their second up over 60%, they announced a third promising deal on Monday, March 8, 2021. Shareholders could get rewarded with an upside far larger than our risk.

The target, IonQ, is working to build the world’s most powerful computers at the beginning of the quantum age. They are backed by Google (GOOG) (GOOGL) and Bill Gates’ Breakthrough Energy Ventures. They made the only quantum computer on the cloud on both Amazon (AMZN), which is also an IonQ investor, and Microsoft (MSFT) platforms. They are on track to build modular quantum computers that can be networked as soon as 2023 leading to quantum advantage broadly within the subsequent two years.

This transaction advances IonQ’s mission, to solve critical problems that impact nearly every aspect of society. With our key strategic partners, such as Breakthrough Energy Ventures, Hyundai Motor Company and Kia Corporation, we look forward to leveraging the power of quantum computing in the fight against climate change and to solve vexing problems from materials design to logistics that impact the transportation industry.

- IonQ CEO Peter Chapman

Peter Chapman worked at MIT’s Artificial Intelligence Lab while at school there. He was the director of engineering for Amazon (AMZN) Prime.

After the deSPACing process is finished, IonQ will trade on the NYSE under “IONQ”. The company will get $300 million from dMY III’s trust if there are no redemptions (I anticipate few if any). They will get another $350 million from a PIPE backed by Hyundai, Kia, Silver Lake, Michael Dell’s MSD, Marc Benioff’s TIME Ventures, Fidelity, Bill Gates’ Breakthrough Energy Ventures, and others. DMY is working with Goldman (GS) and IonQ is working with Morgan Stanley (MS) on the deal.

Investors are in good company, alongside Amazon (AMZN), Samsung (OTC:SSNLF), Lockheed Martin (LMT), Airbus (OTCPK:EADSF), Hewlett Packard Enterprise (HPE), and others.

I plan to be a customer as well as an investor:

Conclusion

I am highly selective in SPAC targets. My favorite way to hedge them is to short a SPAC ETF (SPAK). But every once in a while, there is one worth owning and dMY III (DMYI.U) is one.

TL;DR

Short SPAK; buy DMYI.U.

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This article was written by

Chris DeMuth Jr.

37.22K Followers

Chris DeMuth Jr., is founder of event driven hedge fund Rangeley Capital. Its strategy is to invest in mispriced securities with limited downsides and corporate events that unlock shareholder value. Rangeley exploits the seams between other hedge funds’ mandates.

Chris runs the investing group Sifting the World, in which he shares his best ideas, deep research, extensive resources and real time updates as investments play out. The group contains an experienced community that shares specialized knowledge when members have local knowledge of opportunities under discussion. Learn more.

Analyst’s Disclosure: I am/we are long DMYIU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

https://seekingalpha.com/instablog/957061-chris-demuth-jr/5549358-legal-disclosure

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