Axios Pro Rata

Not all companies are fit to go public via SPAC, despite so many of them doing so.

Why it matters: While SPACs were quickly touted as a faster and better way for companies to go public, ultimately not all businesses that have chosen that route are meeting investor expectations.

The big picture: Nearly 200 companies have completed mergers with U.S.-listed SPACs since the beginning of 2021, across a range of sectors, including software, biotech, electric vehicles and sports betting.

• Still: SPAC stock redemptions started to pick up over the summer, with most in July at above 50%, signaling some investor discontent.
• There's also been an uptick in merger cancellations.

By the numbers: "For the 262 SPAC mergers that were completed during 2020 and 2021, the average stock price on Dec. 31, 2021, was $8.70, considerably below the average price of more than $10 per share at which the stocks traded at the time of the merger," says Jay Ritter, professor at the University of Florida's Warrington College of Business, who used SPAC Research data.

• Only a quarter (65 out of the 262) traded above $10, although some were above $35 per share (e.g., Heliogen, Virgin Orbit and CompoSecure).
• "The average stock price decline during the post-merger ('deSPAC') period for the 2020-2021 cohorts is noteworthy, given that the stock market finished 2021 near an all-time high," adds Ritter.
• According to a late November Wolfe Research report, mergers from that last three months had better returns (-2%) 30 days post-merger relative to the 2020 (-11%) and 2021 (-8%) cohorts.
• When comparing mergers with "experienced" and "non-experienced" SPAC sponsors at 30 days post-merger for the 2019-2021 cohort, the experienced group posted higher returns (-6%) compared to the non-experienced (-10%). The same goes for 7, 90, 180 and even 365 days post-merger, the report notes.
• Note: While median returns are nearly all negative, we're still seeing that the "experienced" group is faring better (and even hits +3% a year post-merger).

Between the lines: Whether the SPAC’s sponsor had expertise in the target company’s expertise is one of the strongest indicators of post-merger performance, according to Wolfe Research.

• For example, fintech company SoFi, which merged with Social Capital Hedosophia Holdings Corp. V (categorized as an "experienced" SPAC operator by Wolfe), saw its stock price appreciate following the completion of the merger. The SPAC’s stock also reacted favorably to the merger announcement and had virtually no redemptions. It continues to trade above $10.
• Similarly, companies merging with SPACs managed by top-ranking underwriters have also outperformed, according to a working paper by Minmo Gahng, Jay Ritter and Donghang Zhang.
• Overall, researchers' findings reinforce the common refrain throughout this boom that an elite group of sponsors and target companies will emerge and continue to do well.

What to watch: Whether the SPAC rush continues, or if more companies opt for IPOs or remaining private.

Dave, a Los Angeles-based fintech company billing itself as a modern digital bank, is the latest test of the above trend that targets merging with experienced sponsors perform better.

Driving the news: Dave began trading on the Nasdaq on Thursday, closing its first day up 3%, with a market capitalization of about $3.1 billion — below the $4 billion valuation it initially expected. It closed at $5.82 on Friday, another 31.77% down.

The intrigue: Its SPAC sponsor, Victory Park Capital, has a history of backing fintech companies, including Square, iZettle, Kabbage and even Dave itself.

• Citigroup and Jefferies underwrote the SPAC. But it also attracted PIPE capital from top investors: Tiger Global, Wellington Management, Corbin Capital Partners and Alameda Research.

Yes, but: Fintech companies (excluding insurance and property ones) are down an average 35.4% since their respective first-day closing price, compared with 27.4% for the total 2021 IPO class, per Renaissance Capital, my new colleagues Ryan Lawler and Lucinda Shen point out. (Join the wait list for Axios Pro, including their upcoming fintech newsletter, here.)

What to watch: Dave's first quarterly earnings as a public company, and how the market reacts.

The SPAC that's set to eventually merge with Donald Trump's social media company continues to defy market logic.

What's new: With news on Thursday that "Truth Social" would make its debut on Feb. 21, Digital World Acquisition Company's (DWAC) stock price rose nearly 20% by market close that day.

• CF Acquisition Corp. VI, which is set to merge with Rumble (a video app that inked a deal with Trump's social app) also rose after the news.

Yes, but: The Trump Media and Technology Group (TMTG) is still more talk than substance.

• And another SPAC headed by DWAC's Patrick Orlando narrowly escaped liquidation on Friday by getting shareholders to approve an extension.

Between the lines: Unlike most (or frankly, all) other SPAC combinations, DWAC's market performance is not based on its target's business fundamentals, or even a semblance of potential success as in the case of pre-revenue electric car companies.

• Instead, it's largely a proxy for Trump's popularity. Its high price and latest bump are thanks to Trump fans buying up the stock (and likely other investors buying now in hopes of making a profit at the next price-boosting news).

What to watch: Whether TMTG's social media app actually lands on time — and how DWAC's stock price reacts.

• Frankly, any news coming out of the SPAC and Trump's venture is notable. Everything is a wild card on that front.

• Working paper on SPACs (Gahng, Ritter and Zhang)
• For SPACs, one characteristic seems to determine the investing winners from losers (CNBC)
• Explaining Donald Trump’s Media "SPAC" Thing (Slate)

SPACs that have merged with pre-revenue target companies have caused a lot of head-scratching over the last two years.

• Question: Which such company has maintained an exceptionally high stock price despite not releasing any products to consumers until October 2021? (Answer at the bottom.)