Canadian Listed SPACs
In follow up to Part 1 where we talked about the mechanics of an SPAC, today we look at SPACs currently listed in Canada. Without getting into too much history, SPACs were first introduced to the TSX Index back in 2008.
It took until 2015 for the first set of SPACs to begin trading on the Index.
Unfortunately, it didn’t work out – most ended in failure which led to a relative disdain for SPACs here in Canada. However, now that the market in the U.S. is picking up steam, we may yet see a resurgence of SPACs in Canada. As I am writing this piece (mid September), there were another five blank-check companies to file for IPOs on the U.S. exchanges – today alone.
The SPAC market doesn’t appear to be going anywhere, and it is likely that more blank-check companies will begin to list on the TSX Index. As of writing, there are only two – Bespoke Capital Acquisition Corp (TSX:BC.U), and NextPoint Acquisition Corp (TSX:NAC.V). There are another handful of SPACs trading on either the CSE and NEO exchanges, but we have zero interest in those.
Cannabis-focused
For starters, most investors don’t follow the CSE and NEO exchanges which makes liquidity an issue. Secondly, all are focused on the cannabis industry. This is not an industry that we are bullish on as a whole – it remains too fragmented and speculative. Most of these SPACs IPO’ed when Cannabis stocks were all the rage, and well – we all know how that worked out.
The same can be said of Bespoke Capital Acquisition Corp. Although it is listed on the TSX, the company is focused on the cannabis industry. Specifically, their strategy reads as follows:
“BCAC’s strategy is focused on building a leading international vertically integrated cannabis company operated to the highest standards of regulatory compliance and corporate governance.”
Once again – not something we are really interesting in. The company went public in August of 2019 and has traded sideways ever since. We’d take a pass on this one.
Alternative lending
The only SPAC of interest on the TSX is NextPoint. The company went public on the TSX Index on August 11 and raised US$200 million at US$10.00 per Class A Restricted Voting Units.
Each Voting Unit (TSX:NAC.V) is comprised of one Class A Restricted Voting Share and one-half Warrant. Each whole Warrant entitles the holder to purchase one Class A Restricted Voting Share at US$11.50.
If you remember, the units trade and then split after a period. In NextPoint’s case, that time period is 40 days. This means, that the Units are still trading and if you purchase a unit, you are entitled to both one common share and one-half warrant.
Once that 40-day window passes, the company will split, and the voting shares and warrants will begin trading independently on the TSX Index.
The company is being spearheaded by the BasePoint Capital duo of Andrew Neuberger (Founder and former CEO) and Frank Amato (CFO). They have a history of success leading BasePoint – a UK-based diversified specialty finance company.
Neuberger sold BasePoint in January and is now focusing his efforts on NextPoint. One of the drawbacks to this duo, it is their first SPAC venture. Typically, those who have a history of leading successful SPACs continue to have success, while those new to the space struggle.
The good news? The duo has a successful history of growing and profiting off a company in the alternative lending space. This is the area in which NextPoint intends to focus on, and is much more attractive than the cannabis industry. There are several emerging fintech companies and the space is highly fragmented.
The company has already announced that it has entered discussions with potential targets. Although nothing is imminent, they appear to have hit the ground running.
Of the few TSX-listed SPACs, in our opinion NextPoint is the only one worth considering. It is certainly not for the defensive investor, and carries considerable risk.
Not surprisingly, the company is still trading at its IPO price (USD$9.99) per share as it has yet to announce any formal news. As a reminder, it has three years in which to make an acquisition.
Moving forward, we will continue to report on SPACs in our new IPO Centre which is scheduled for launch in early October.
However, we hope this introduction to SPACs and a highlight of a few in this premium content piece has helped you. If you need a refresher, don’t hesitate to head back to part 1.
Now, with our IPO centre launching on October first, we figure we’d give you a bit of a preview and speak on a company that’s going public soon.
Nuvei IPO
Since our IPO Centre is only going live in October, we thought it was important to advise everyone that Nuvei Corp has announced the details of its planned IPO.
Nuvei operates in the red-hot SaaS space and provides payment-processing technology for merchants. Their suite of products serves both online and in-store transactions and counts Stripe, Paypal, Fiserv, Global Payments, Shift4 Payments and WorldPay among its competitors.
Interestingly, it does not list current Stocktrades Bull List pick Lightspeed POS (TSX:LSPD) as a competitor. However, they are clearly both in the same space as they both offer integrated payment systems. We’d argue that Shopify (TSX:SHOP) is also an indirect competitor.
Nuvei is bigger than LSPD and is one of the largest privately held fin-tech companies in Canada.
According to the prospectus, they are looking to raise US$600 million at prices between $US20-$22 per share. At the high range, this gives it a market cap of US$2.9 billion.
On a trailing twelve-month basis, Nuvei generated US$324M in revenue and US$34B in gross transaction value (GTV). In comparison, LSPD generated US$132M in revenue and US$23B in GTV.
Since the company is not yet profitable (like most emerging tech companies), it is best to use P/S as a valuation guide. Assuming the company prices its IPO on the high side, it will be trading at 9 times sales.
In comparison, the competitors listed above are trading at a wide-range of valuations. From 3 to 20 times sales. Worth noting all of them are trading on the US markets and have varying growth rates.
LSPD is one of the few trading on the TSX and is currently trading at 30 times sales and has a market cap of $3.9 billion. In fiscal 2020, it grew revenue by 56% over fiscal 2019 and the expectation is for ~40% revenue growth over the next couple of years.
For its part, Nuvei grew revenue by 64% in fiscal 2019 and through the first 6 months of 2020, revenue is up by 73%. Since LSPD is listed on the TSX, we believe it is the most accurate competitor and by comparison, Nuvei looks attractively valued.
Given this, we expect Nuvei’s IPO to be fully subscribed
How will it open when it begins trading (which is expected to be late September)? If the company prices at the high range and is over-subscribed, that will be a telling sign that there is strong demand. This happened to Dye & Durham (TSX:DND) and we’ve see just how well it has performed since its IPO. Granted DND was only trading at 5 times sales when it listed.
We must re-iterate that investing in IPOs is high risk, and if you do decide to take positions, we would stress doing so only with money you’d be comfortable losing.
Although it can work out quite well (see LSPD, DCBO, DND), it can also fall flat and there many cases whereby retail investors lose out.
There is also the added risk that the tech space is under pressure right now, this can lead to lower-than-expected demand for this IPO.
Expect further updates on Nuvei and other IPOs when the Stocktrades IPO Center launches in October 2020.
