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More Rational by the Day

The scrubbing of the SPAC IPO space continues. Bad deals are getting pulled. Some people are going to jail. New names are starting cheaper.

October 17, 2022 - The SPAC IPO market continues to be hammered by reality and regulators. The lousy deals are being terminated - like Benessere / eCombustible. We wrote about the absurdity of the Benessere Capital $BENE eCombustible combination, which appeared to be a bunch of made-up ideas about getting into the energy business.

Even more, experienced and qualified buyers like Lux Health $LUXA have called off their deals and are returning their capital. This is why you now see such cheap warrants on pre-deal SPAC names.

Jail is now a thing.

I thought we would give up on enforcing any SEC laws going forward. Still, news this week that Trevor Milton of Nikola $NKLA infamy was convicted of fraud and is looking at jail time sends a signal that management may be held accountable. I reflected on some of my frustration in an ADC post: Is Security Law Moot?

There's still a long way to go, and I wish the SEC would just implement some basic rules regarding projections and valuation "analysis" into these decks. Maybe if we put an example together and send it to them, they will consider it. Unfortunately, we don't have a lobbying budget...

This ruling should begin to put more pressure on providing rosy projections and using self-serving comparables to justify valuations.

Froth is Cheaper

Tenuous deals are still being announced, but they are at least less expensive. Today we have another "Web3" technology company called DLTx announcing their combination with Blockchain Moon $BMAQ. There's no investor deck yet, but since part of the company is listed on the Oslo exchange, we have some material and will post it to the site. It's a complicated story and mired in crypto challenges, but at least the EV is $165M versus $1B.

Oculis announced a combination with European Biotech Acquisition $EBAC with an EV of $220B and substantial forfeit of sponsor shares.  They have a drug pipeline for several ocular diseases and decent strategic PIPE investors, including the Novartis Venture Fund. The company's success hinges on clinical trials, which are always risky. But they have five compounds in 12 different programs, some of which are in Phase 2 and Phase 3. You're getting quite a few "shots on goal" for $225M.

Yet another private jet charter company, flyExclusive, hopes to get public via EG Acquisition $EGGF. We've already had WheelsUp $UP in the market, now at $1.18. This one is a bit pricier, with an EV of $910M. They will compete for attention and investment dollars with Flexjet coming public via $HZON. Flexjet has a real business with projected 2022 revenues of over $2B and positive FCF. That comes at a $3B EV but may offer a better risk-return.

The slides will all be up here soon, and as these get closer to potential approval, we'll be out with more on their prospects.