The #1 SPAC In History

Summary

• The top performing former SPAC of all time.
• How it has done so far.
• Top prospects at each SPAC phase.

deSPACed

In the history of SPACs, the top performing deSPACed equity is QuantumScape (QS), formerly Kensington Capital Acquisition Corp. (nee KCAC). For $10, IPO subscribers received a unit consisting of a stock and a half of a warrant. The half of a warrant as of this writing has a market value of $10.74 and equity has a market value of $69.18 for a unit market value of $79.92. Given the high volatility, one might consider writing call options against the equity piece. December 18, 2020 $70 calls last traded for $11. Meanwhile, for investors holding both equity and warrants, I would prefer to hang onto the (QSW) warrants due to their relative valuation.

So IPO investors have made about 8x their money since mid-2020. But that understates the performance of SPAC IPO investors since that first $10 is protected by a $10 put. We don’t risk $10 to potentially make $70; we risk $0 to potentially make $70. The return on original invested capital at risk is infinite.

How do you capture these opportunities? To answer that question, I will first focus on QuantumScape’s history and then describe the current top prospects for the next QuantumScape. The day after the deal was announced in early September, I wrote that,

I think it will be >$100 per share within a year. Agree that it is crowded (both vis a vis competitive companies and technologies). And I've spread my battery bets a bit, but this has been my biggest one so far. Historically there have been some extremely dubious public battery companies that have gotten a lot of traction from ESG investors; this will be one of the more plausible as a business. Over the next year, I'm just in awe at the scale of the task ESG-dedicated funds have in terms of putting money to work. A lot will be attracted to this company; it is probably a better case than the one I mentioned for CCAC.U.

It has since moved in that direction.

The sweet spot for QuantumScape mentioned at the end of that quote is combining technology, ESG, and SPACs. There is venture capital-type investor interest in the overlap of the three that is wholly insensitive to short-term fundamentals and is instead willing to accept potential earnings many years into the future.

Before the deal announcement, it was clear that Kensington would target such a deal. As I discussed in July,

As many ESG mandated investors allocate based on market cap, they allocate more capital the higher these EV company stocks rise. That in turn improves ESG performance drawing more capital. Now over $40 trillion is invested based in part on ESG criteria. It can’t all get invested in Tesla (TSLA), so each one of these EV companies will have a flood of price-insensitive investors ready to invest. Nikola (NKLA) demonstrated it, Fisker (FSR) reinforced it, and KCAC can be the next big beneficiary which is why I own their KCAC.U units. These include a share as well as a half of a warrant. This is my candidate for the next automotive SPAC to pop 50% like Spartan (SPAQ) did, to impress retail speculators, and to take down their share of the $40 trillion ESG money pile.

deSPACing

Looking at the SPACs with announced business combinations in the process of deSPACing, the most promising one is Trine (TRNE). It is already one of the top ten performing SPACs with announced deals, but there is much more to go. I was very bullish when I first disclosed my investment in Trine in July.

I remain so today following their announced acquisition of Desktop Metal, which shareholders approved yesterday, Tuesday, December 8, 2020. With the deal approval, holders lose the protection of the trust’s redemption value. To partially offset the additional downside risk, one might consider writing the January 15, 2021 $20 calls which last traded at $6.32 per share.

Trine’s target, Desktop Metal (DM), makes 3d printer systems, mostly focused on the car industry. Their technology is 100x faster than the legacy technology it will replace. They will have over $625 million in cash from the SPAC and their PIPE. Existing investors are rolling all of their equity. Major customers include Ford (F), GM (GM), and Toyota (NYSE:TM). They expect an 87% CAGR through 2025.

SPACs without deals

Focusing on SPACs without announced business combinations, it is worth concentrating on the top ten largest SPACs. SPAC size matters. All ten are worth owning, but the most promising is $805 million Ajax I (AJAX.U). The sponsor, Danny Och, is bright and well-connected. Based on the SPAC’s name, he intends to do this more than once and will want the first one to work well as a precedent. He is in the process of vetting a large number of deal candidates now and will pick a great one. He was wise to keep his options open by not specifying a sector and instead will be opportunistic. With his scale and ability to supplement the SPAC with additional capital, he can hunt big game. And your downside is still protected by $10 of cash in trust.

Pre-IPO

My favorite pre-IPO SPAC is Liberty Media Acquisition Corp (LMACU); I asked for a million units and hope I get them. Weighing in at a half billion dollars, it is tied for the largest current pre-IPO SPAC. They are looking for a deal in digital media, music, entertainment, or telecommunications. No one – no one – knows these sectors better. CEO Greg Maffei (left above) is a business genius but perpetually the second brightest guy in the room since he keeps working with John Malone. He runs GCI Liberty (GLIBA) which is merging into Liberty Broadband (LBRDK) which he also runs and is also in charge of various other Liberty entities. So his operational skills are without equal.

But can he put together a deal? He closed the best deal ever, Liberty’s half billion investment in Sirius XM (SIRI). The timing was good and it turned out well.

I am an investor via Liberty SiriusXM (LSXMK) which remains a top five holding of mine.

What is my confidence level in the Liberty SPAC? Higher than it was in Trine. In that case, I was over 99% sure that Hindery, another John Malone lieutenant, would find a deal and I expected the announcement to pop between 18-25% (this proved conservative). Liberty is bigger and better on both counts. Buy $10 units, risk nothing, and make at least 25% when Maffei announces his deal.

Conclusion

These are my best bets for SPACs that share the promise of QuantumScape, history’s most successful SPAC. For anyone interested in updates and subsequent picks, I offer my best SPAC ideas each week in SPAC Focus. There are so many SPACs in the current pipeline, more than in any prior year, that I find it useful to break them down into each phase of the process and focus on the biggest, best SPACs with experienced sponsors, connected underwriters, and generous amounts of capital. That’s how I first found Kensington/ QuantumScape, Trine, and Liberty and that’s how I hope to find the next great SPAC opportunities.