Another week, another special purpose acquisition company with eyes on a Tel Aviv unicorn.
It’s funny how rumors on Sunday become an announcement a few days later. This past week, it was insurtech Hippo that was said to be under due diligence by Reinvent Technology Partners (NYSE:RTP).
Days earlier, news broke that electric-vehicle tech startup REE Automotive would merge with 10X Capital Venture Acquisition (NASDAQ:VCVC) in a $3.1 billion pro forma value tie-up. Not to be outdone, cross-border payments unicorn Payoneer will enter a holy union with SPAC FTAC Olympus Acquisition (NASDAQ:FTOC) at an estimated enterprise value of $3.3 billion.
Even Taboola has partnered up with home-grown blank-check firm ION Acquisition (NYSE:IACA) just months after the latter’s NYSE IPO. The digital advertising (is that what we all it?) company left Outbrain at the altar last year and clearly has found a more sugary daddy.
Fill in the Blank (Check)
In case you were sleeping for the last six months (a real possibility), capital markets have glommed on to the idea of giving a big pot of money to a group of investors who then embark on a (usually) maximum two-year quest to find an investment. Hence blank check.
The shares of these special purpose acquisition companies typically trade in a range of $10 – $13 a share following their initial public offer, occasionally surging in response to a rumor, before finally settling on a merger partner.
The shares of the SPAC IPO don’t do that well. Data compiled by Renaissance Capital shows that of nearly 100 of the entities that have completed mergers in the last five years, on average they’ve lost investors 18.8% of their money, with a median return of minus 36.1%.
Had you put your money in a traditional IPO, you’d have seen about a 37% increase in your investment. As of this writing, 2021 has seen 144 SPAC IPOs come to market, setting loose $44.4 billion in search of an investment. Altogether, there are 315 SPACs now looking for private companies, mostly in technology and healthcare.
Mr. SPAC Comes to Town
Enter Mr. SPAC, Niron Stabinski, head of SPAC for Credit Suisse, who told Calcalist recently that “Israel creates the perfect companies for SPACs, firms that grow very quickly and go public at an early stage while skipping over private funding rounds.”
Considering that Stabinski’s employer was last year’s top underwriters of blank-check deals, that statement carries some weight. “Niron has become Mr. SPAC,” one dealmaker told The Wall Street Journal earlier this month.
So when a guy like that comes in to Tel Aviv, flattering tech entrepreneurs and promising a big exit without a lot of the usual leg-work, who wouldn’t want to want to take that route?
Operators Add Value
To be sure, it’s early in the game. Long-term investors should look for those deals that bring more than just a bag of cash to share with some lucky kids working from their Ha’Arba’a Street offices. Look for a deal that’s likely to add value to the Israel tech firm (and the country’s economy) over 12, 24, or 36 months out and beyond.
Of those seen so far on the Israel landscape, I’m most interested in Reinvent Technology Partners, late of the Hippo insurance tech rumors. It’s an operator-led SPAC — notably by Reid Hoffman of LinkedIn and Zynga’s Mark Pincus.
As they wrote shortly after their IPO last year, “Rather than offering a one-time service of going public, Reinvent is a long-term financial co-founder.” I believe them when they say that history is on their side, citing a McKinsey study showing that operator-led SPACs outperformed their market sector and strongly outperformed non-operator-led SPACs.
They aren’t only in it for the money. Maybe they’ll find a willing partner in Tel Aviv that wants the same.
TLV Takeaways
Speaking of SPACs, the other story that caught my eye last week was the 2.4% stake in InterCure purchased by ARK Invest for its Israel Innovative Technology exchange-traded fund portfolio.
The SPAC angle involves Canada’s Subversive Real Estate Acquisition REIT (OtherOTC:SBVRF), which plans to merge with InterCure in April.
Anything that ARK does gets me interested. When the fund manager’s CEO, Catherine Wood, makes a move, good things happen. She rocked the gene-editing space in December with her bet on CRISPR Therapeutics (NASDAQ:CRSP). Last month, she sparked launchpad fever with her firm’s filing that it will debut a space exploration ETF.
ARK last year saw its ARK Innovation ETF (NYSEARCA:ARKK) deliver returns topping 170% while growing its overall assets under management to $17 billion, CNBC noted.
As things start to shake out in the cannabis space, InterCure could end up changing the marijuana landscape here.