GSR II Meteora Acquisition Aims For Merger With Wide Latitude

Summary

  • GSR II Meteora Acquisition went public recently, raising around $316 million in an IPO.
  • The SPAC seeks to merge with a company in one of a wide variety of industry sectors.
  • While management has extensive SPAC industry expertise, its limited track record has not delivered investor success, so I'm on Hold for GSRM.
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A Quick Take On GSR II Meteora

GSR II Meteora Acquisition Corp. (NASDAQ:GSRM) has raised $316 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.

This SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in the sectors of software, technology-enabled manufacturing and services, mobility and transportation sectors, as well as companies that help to address evolving environmental, social and governance related issues.

While management has significant experience in the SPAC industry, the lack of a positive track record means I'm on Hold for GSR II Meteora in the near term.

GSR II Sponsor Background

GSR II has 3 executives leading its sponsor, GSR II Meteora Sponsor LLC.

The sponsor is headed by:

- Co-CEO, Gus Garcia, who was the former head of SPAC M&A for Bank of America and has extensive finance industry experience.

- Co-CEO, Lewis Silberman, who is Co-President and Director of various SPACs under the Graf Acquisition name and others.

- President Mr. Anantha Ramamurti, who was previously a Managing Director and Head of the Global Mobility Group at Bank of America Securities.

GSR II's Possible Market

According to a 2022 market research report by Mordor Intelligence, the global market for smart manufacturing technologies was an estimated $173 billion in 2020 and is forecast to reach $236 billion by 2026.

This represents a forecast CAGR of 5.75% from 2020 to 2026.

The main drivers for this expected growth are a desire from firms to transition from legacy systems to smarter components and machines for efficiency purposes.

Also, the use of software such as "PLC, SCADA, ERP, DCS, HMI, PLM and MES has enabled industries to gather real-time data and make decisions based on them...reducing downtime, scheduled maintenance, and switch from being in the reactive state to predictive and prescriptive stages and decision making."

The SPAC may seek to merge with a firm in another industry.

GSR II's SPAC IPO Terms

Boca Raton, Florida-based GSR II sold 31.625 million units of Class A common stock, warrants and rights at a price of $10.00 per unit for gross proceeds of approximately $316 million, not including the sale of customary underwriter options.

The IPO also provided for one warrant and 1/16th of a right per share, exercisable at $11.50 per share 30 days after the completion of its initial business combination and expiring 5 years after completion of the initial business combination or earlier upon redemption or liquidation.

The SPAC has 18 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.

Stock trading symbols include:

Founder shares are 20% of the total shares and consist of Class B shares.

The SPAC sponsor also purchased 12.23 million warrants at $1.00 per warrant in a private placement. The private placement warrants are identical to the public warrants and are subject to certain transfer restrictions and may be exercised for cash or on a cashless basis.

Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.

The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor's 20% equity ownership position.

Commentary About GSR II

The SPAC is interesting because the leadership team has extensive experience on the finance side of the SPAC market.

However, they don't have a track record of SPAC success for the "Graf" SPACs they serve/have served as directors for.

The first Graf SPAC vehicle has performed disappointingly in its purchase of Velodyne Lidar (VLDR), whose stock price has dropped 87% in the past year.

Other Graf SPAC vehicles have either withdrawn their filings or in the case of Graf Acquisition Corp. IV (GFOR), the SPAC has not yet announced a merger target, although the firm was reported to be in talks with roadside assistance company Urgently.

Investing in a SPAC before a proposed business combination is announced is essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.

So, in a sense, investing in a SPAC can be likened to investing in a venture capital firm as a limited partner.

The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.

Also, unlike a venture capital fund, a SPAC is liquid, providing public investors with an added liquidity benefit should they need to sell.

In the case of this particular management group, there is no previous SPAC track record of successful outcomes for investors, which is a negative.

While management is indeed experienced in the SPAC industry, the lack of a positive track record means I'm on Hold for GSR II Meteora in the near term.

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This article was written by

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