CF Acquisition Corp.: Strong SPAC With Attractive Warrant

Summary

  • SPAC sponsored by Cantor Fitzgerald and spearheaded by Howard Lutnick.
  • Heavy-weight team with tons of SPAC experience.
  • SPAC is limited in size and only includes 1/4th of a warrant with a unit.
  • High probability SPAC to get a deal done with relatively attractive warrant.
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CF Acquisition Corp. VIII (NASDAQ:CFFE) is a 4-month-old SPAC that raised about $250 million. The SPAC is spearheaded by Howard Lutnick, a finance and investment banking veteran. From what I've seen of him through his leadership as CEO and chairman at publicly traded BGC Partners (BGCP), I'm favorably inclined towards his SPACs. He also leads the private investment bank Cantor Fitzgerald (founded in '45 and almost succumbed to the 9/11 terror attack).

I'm a shareholder of both GCM Grosvenor, Inc. (GCMG) as well as the aforementioned BGCP. I've been betting on Russell inclusion to no avail as another index, which made a mistake on float, kicked the company out. GCM is an alternative asset manager that's been taken public through SPAC:

Chart
Data by YCharts

It hasn't impressed so far but you can't expect alternative asset managers to race up on SPAC deals. That is not what the market yearns for even though I believe the company is underestimated.

Another previous SPAC target is View (VIEW) that designs smart windows. Since its despaccing event, it's a bloodbath:

Chart
Data by YCharts

There's another SPAC, CF Acquisition Corp. IV (CFIV) but it will only consummate its business combination, with LiDAR company AEye Holdings, in the near future.

Chart
Data by YCharts

The SPAC is looking a target with an enterprise value of between $500 million and $1.25 billion with sustainable competitive advantages, predictable free cash flows, the potential to benefit from CFFE team's expertise, experience and network, solid management, growth potential and an attractive valuation profile. These criteria are hardly unique but I have above-average faith in the capabilities and savvy nature of the team and the Cantor organization.

An important focus for the team will be the following segments:

  • Brokerages (ties into Cantor and BGCP business)
  • Healthcare (strong franchise for Cantor)
  • Fintech (think on the electronic brokerage side or similar backend tech)

This means we can probably slightly discount the warrant value as these aren't necessarily the most volatility-realizing criteria. I'd say the criteria are more conducive to value creation over the long term.

Valuation

In terms of valuation, I'd say the warrant is where it's at here. Warrants are actually often quite attractive in the current SPAC market. CFFE has shares trading at $9.81 and that's actually slightly above the average for this category of SPACs. Its units trade at $10.06 which is right at the current average for its category. You could argue this is a much better than average quality unit and I would agree. Buying a unit at $10.06 (including 1/4th warrant) has the added benefit of having only $0.06 downside due to the SPAC redemption feature.

However, the warrant trades at $1.08 and that's well below its category average. In addition, this is actually one of the better warrants that can only be redeemed by the company above $18. A feature that's currently pretty rare among good-to-great SPACs.

SPACs that include 1/4th warrant with a unit on average trade at $1.29 but that includes SPACs at all stages in their life-cycle. Looking for deals the average goes down to $1.25.

Warrants can go to zero if no deal is struck before expiry. However, here that seems a remote possibility. The team has a track record of getting deals done. Has a terrific network and investment banking background and the size of the SPAC is limited.

I write the Special Situation Report. I look at special situations like spin-offs, share repurchases, rights offerings and a lot of M&A events. The point is to make money with risks under control. Check it out here. Follow me on Twitter here or reach out through email at dehaas.bram at gmail dot com.

This article was written by

Bram de Haas profile picture
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Professional risk-taker focused on smart bets and risk control.
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p$ker (I'm not that immature but the real word gets censored) professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail

Disclosure: I/we have a beneficial long position in the shares of GCMG, BGCP either through stock ownership, options, or other derivatives. 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.

Additional disclosure: May go long warrants in CFFE in next 72 hours.

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