SPAC Action This Day: Fortress’ Next MP Materials? (NYSE:MP)

Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Summary

6 new SPAC IPOs today.
Here is today's best new opportunity.
Just one new one worth focusing on.

Fortress Capital Acquisition Corp

$350 million Fortress Capital Acquisition Corp (FCAX.U) started trading on the New York Stock Exchange today, Wednesday, January 13, 2021. When you buy a unit, you get a share of equity, free upside in the form of a fifth of a warrant that you can exercise later for $11.50 and free downside protection in the form of $10 of trust value. There is a great likelihood that they find a deal within their two year time window and a good shot that they find one in less time than that. They are looking for a target in financial services.

Who are those guys?

The sponsor team is led by Michael Nierenberg. He has the attributes I look for in a SPAC sponsor – accomplished, experienced and well-connected. I like smarts, but not mad scientist smarts; I look for smart combined with strong existing relationships. Nierenberg defines that.

He is a Managing Director at Fortress, this SPAC’s affiliate, and CEO of New Residential (NRZ). He has worked in all sorts of senior roles at Bank of America (BAC), JPMorgan (JPM), Bear Sterns, and Lehman. Everyone knows him and he’ll see a ton of deal flow. Likely, he already knows exactly what he wants to do with this SPAC. In fact, as I was writing “there is a great likelihood that they find a deal” above, what I was actually thinking is that there is a 100% chance that he’ll find one barring a nuclear apocalypse. In that case, you’ll have worse problems than a pile of worthless SPAC warrants.

WHYDFML?

Nice career, Nierenberg, but what have you (or your team) done for me lately? Fortress III (FVT.U) last traded at $10.87, Fortress II (FAII.U) trades at over $12, and Fortress Value (FVAC.U) deSPACed MP Materials (MP). That equity has been better than a three bagger so far.

How bad could it be?

If they fail to find a deal, it will cost the sponsors $9 million. Outside passive minority investors will recover their $10 capital from the trust value, but warrants will be worthless.

How good could it get?

Not impossible that they bag another three bagger. They almost certainly (narrator: certainly) had backup plans for their last several SPACs and can just pick another one off of their extensive shelf by the early part of Q2. Your money won’t be tied up in this one for long.

So what?

If you have a good Citi (C) or Goldman (GS) relationship, you probably tapped it to get a good allocation to this at $10. That was a great subscription, but it popped only modestly and is still quite an opportunity in the secondary market. If you buy it today under $11, you’ll get a terrific expected value with a great shot at an IRR somewhere between blah and fantastic over the next quarter. It won’t make you poor. It might make you rich or richer.

Action This Day

So far, here is what I’ve written:

Softbank’s SPAC generated the most interest so far. Thanks for reading; last call this month.

TL;DR - Too long; didn't read?

Buy FCAX.U for under $11 and hold it at least until they announce a deal.

Analyst's Disclosure: I am/we are long FCAX.U, FAII.U, FVAC.U. NRZ.

First, if you’d like to put together a portfolio of these opportunities yourself, be careful: they have terrific risk/rewards, but you have to execute the strategy perfectly. One errant failure to keep track of a redemption deadline could easily wipe out the upside of the rest of a portfolio. Second, our firm manages a discretionary strategy focused on SPACs, and while we disclose positions that are discussed in this article, we may buy or sell positions at any time on behalf of our investors. If you have questions or would like to understand more about the strategy, please contact my colleague Rob Sterner at rsterner@rangeleycapital.com.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.