What You Need To Know This Week — September 26th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
SPAC SWITCHBACK ENERGY TO ACQUIRE EV CHARGING NETWORK CHARGEPOINT IN $2.4 BILLION TRANSACTION
Switchback Energy Acquisition, a $300 million special purpose acquisition company focused on the upstream and midstream energy sectors, jumped on the bandwagon for all things electric vehicle related, changed its mandate and struck a deal with electric vehicle charging network ChargePoint. The startup, which ranks as the world’s largest electric vehicle charging business, will raise close to $500 million and be valued at $2.4 billion in the reverse merger. The SPAC’s shares traded up nearly 30% on the news.
BERKSHIRE BITES ON $600 MILLION PREFERRED FINANCING FOR E.W. SCRIPPS ACQUISITION OF ION MEDIA
Warren Buffett’s Berkshire Hathaway is putting $600 million of its $150 billion cash pile to work by helping to finance E.W. Scripps $2.65 billion acquisition of true-crime cable network ION Media. The Berkshire investment, led by Buffett lieutenant Ted Weschler, is structured as preferred equity plus warrants, deal terms similar to Berkshire’s previous investments in Occidental Petroleum, Goldman Sachs and Bank of America. The deal will double Scripps’ television station footprint and bolster the distribution of its programming. Given $600 million cash is only a drop in the bucket for the conglomerate, Berkshire’s much desired “elephant-sized” remains elusive.
BLANK CHECK GORES HOLDINGS IV TO COMBINE WITH UNITED WHOLESALE MORTGAGE IN LARGEST SPAC DEAL OF ALL TIME
United Wholesale Mortgage, the number one wholesale mortgage lender in the U.S., agreed to merge with SPAC Gores Holdings IV. The deal values UWM at $16.1 billion, making it the most highly-valued blank check merger on record. Under the transaction terms, UWM will receive $425 million in cash from the blank check company, in addition to $500 million from a PIPE financing. Investors were relatively unimpressed, as Gores Holdings share dropped -5% this week on news of the deal.
Notable Insights, Articles, Podcasts, and Tweets
Listen Larry Swedroe, author of The Incredible Shrinking Alpha, discuss multi-factor investing, fund fees and shrinking alpha on The Acquirers Podcast.
The U.S. Securities and Exchange Commission is reviewing the compensation disclosure regarding special purpose acquisition companies. Many investors may misunderstand how the SPAC sponsor compensation works.
According to the quant research team at Robeco, the size factor no longer produces outperformance in investing. The team, however, noted that “size can add a lot of value by serving as a catalyst that helps to unlock the full potential of other factors, such as value and momentum.”
According to Research Affiliates, price-to-book-value represents an incorrect methodology in measuring a firm’s value, given its exclusion of intangible capital. Quantitative research analysts at Scientific Beta determined that one can improve the effectiveness of the price-to-book-value metric by adjusting to include companies’ unrecorded intangible capital.
Here’s something we haven’t seen in years: an oilpatch IPO. That’s about to change with the upcoming initial public offering of Topaz Energy Corp., a royalty and energy-infrastructure company, which plans to raise $253 million in its market debut. Topaz is a spin-off of Tourmaline Oil Corp., which plans on selling $35 million of Topaz shares in the financing.
Secretive data-mining-software firm Palantir Technologies is expected to be valued around $22 billion in its upcoming IPO. Year-to-date, U.S initial public offerings have raised $95 billion, exceeding the previous record of $84 billion raised at this point in 2000.
Despite being definitively rebuffed by the Audet family, which controls Cogeco through multiple voting shares despite their minority economic interest, Rogers is pushing ahead with its initiative to acquire Cogeco’s Canadian assets. The company’s initiatives include a promise to invest $3 billion in Quebec’s telecom networks and to establish at least 2,000 more jobs in Quebec.
Talk about a “liquid” market. CME and Nasdaq are teaming up to launch a new futures contract that will allow farmers, speculators and other market players to bet on the price of water.
The WSJ profiles Nathan Anderson, the founder of shortselling firm Hindenburg Research, which recently accused hot EV stock Nikola of being an elaborate fraud.
Taking a look at private equity returns, the trickery behind private equity accounting “allows you to create an amazing track record out of thin air.” Including performance fees (also known as “carry”), investors pay 6% to 7% annually in fees to private equity funds.
According to the Financial Times, “the traditional 60/40 portfolio — the mix of equities and bonds that has been a mainstay of investment strategy for decades — is at risk of becoming obsolete as some investors predict years of underperformance by both its component parts.” Increasingly, we are seeing investors move toward a 50/30/20 portfolio, which includes a 20% allocation to a diversified sleeve of alternative investments.
Playboy is exploring a return to public markets through the blank check company Mountain Crest Acquisition in a potential $425 million deal. The Accelerate Arbitrage Fund (TSX: ARB) is long Mountain Crest Acquisition units.
In addition to the speed in which a private company can go public, another advantage that the SPAC structure has over traditional IPOs is that a SPAC can disclose revenue and profit projections to investors, potentially making the company look better to market participants.
McKinsey did a deep-dive into the SPAC market: “We analyzed the 36 SPACs from 2015 to 2019 of at least $200 million with at least 12 months of publicly available trading data. One year after merging, operator-led SPACs outperformed both other SPACs (by about 40 percent) and their sectors (by about 10 percent).”
According to Institutional Investor, SPACs are a new form of asset management, similar to private equity or hedge funds. I believe they are a new asset class, offering returns uncorrelated with traditional stocks and bonds.
