Merger Arbitrage Mondays – SPAC IPOs Break Another Record

Merger activity decreased last week with five new deals announced and four deals completed. Two of the five deals announced were successful “deals in the works”.

Founded in 1973 in Dallas, Texas, The Michaels Companies is one of America’s largest arts and crafts retailer. I had been tracking the stock for several years when it looked incredibly cheap under $20 in 2017. However the leveraged balance sheet and a difficult retail landscape for brick-and-mortar retailers kept me away.

MIK 2017 Tweet

The stock began a long slow decline and hit a bottom during the pandemic at $1.46. The company saw significant momentum during the COVID-19 lockdown as most Americans who ended up working from home looked for DIY projects to redecorate. The company first went public in 1984. In 2006, Bain Capital and the Blackstone Group, purchased The Michaels Companies for $6 billion, taking it private. The company went public again in the year 2014. Earlier this month, Apollo Global Management expressed interest in acquiring Michaels. This potential deal was successful two days later when Michaels agreed to be acquired by APO in a transaction valued at $5 billion.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

There were four new deals announced in the Deals in the Works section last week.

SPAC Arbitrage

While merger activity has been interesting the last few weeks, most of the action appears to be concentrated in the SPAC space. There were an astounding 36 new SPAC IPOs and 7 new SPAC business combinations announced just last week. To put the level of SPAC activity in perspective, there were just 11 SPAC IPOs in all of Q1 2020. This comes at a time when growth stocks appear to have fallen out of favor and the spillover effect is being felt in SPAC land as you can see from this tweet from Chamath Palihapitiya. We covered his sale of Virgin Galactic (SPCE) in our latest insider weekends post.

Chamath Palihapitiya Tweet

You can find the new SPAC IPO announcements in our SPACs tool here.

On March 7, 2021, The Wall Street Journal announced that Evolv Technology, a crowd-safety company backed by Microsoft co-founder Bill Gates and former Florida governor Jeb Bush will be going public by merging with the SPAC NewHold Investment Corp. in a deal valued at $1.7 billion.

  1. Rocket Lab USA, Inc. and Vector Acquisition Corporation (VACQentered into a definitive merger agreement that will result in Rocket Lab becoming a publicly traded company.
  2. Spire Global, Inc. and NavSight Holdings (NSH), have entered into a definitive merger agreement for a business combination that would result in Spire becoming a publicly listed company.
  3. QOMPLX, a cloud-native leader in risk analytics, and Tailwind Acquisition Corp. (TWND) have entered into a definitive business combination agreement.
  4. Beacon Street Group and Ascendant Digital Acquisition (ACND) have entered into a definitive business combination agreement which will result in Beacon Street becoming a publicly traded company.
  5. Doma, formerly known as States Title, a leading force for disruptive change in the real estate industry, has entered into a definitive business combination agreement with Capitol Investment Corp. V (CAP).
  6. Hippo Enterprises Inc. has entered into a definitive business agreement with Reinvent Technology Partners Z (RTPZ).
  7. Cipher Mining Technologies Inc. and Good Works Acquisition Corp. (GWAC) have entered a definitive agreement for a business combination.

Weekly Spread Changes:

The table below shows weekly spread changes between February 26, 2021, and March 5, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
HPR 9.19 Bonanza Creek Energy, Inc. (BCEI) 39.5 -51.00% -63.89% 12.89% All Stock
NEOS 0.77 Aytu BioScience, Inc. (AYTU) 7.46 5.41% -2.07% 7.48% All Stock
CLGX 79.09 Stone Point Capital and Insight Partners (N/A) 1.15% -5.50% 6.65% All Cash
LINX 6.75 StoneCo Ltd. (STNE) 76.67 -7.41% -10.71% 3.30% Special Conditions
CHNG 22.4 UnitedHealth Group Incorporated (UNH) 347.1 14.96% 12.59% 2.37% All Cash
WLTW 228.02 Aon plc (AON) 232.76 10.25% 11.46% -1.21% All Stock
SYNC 2.17 Centre Lane Partners, LLC (N/A) 0.00 1.38% 3.29% -1.91% All Cash
GRUB 60.19 Just Eat Takeaway.com N.V. (TKAYY) 9.12 1.67% 3.68% -2.01% All Stock
DOYU 14.7 HUYA Inc. (HUYA) 26.17 29.96% 34.14% -4.18% All Stock
FBSS 20.7 Virginia National Bankshares Corporation (VABK) 31.19 1.71% 7.32% -5.61% All Stock

Deal Statistics:

Total Number of Deals Closed in 2021 30
Total Number of Deals Not Completed in 2021 1
Total Number of Pending Deals
Cash Deals 54
Stock Deals 18
Stock & Cash Deals 12
Special Conditions 2
Total Number of Pending Deals 86
Aggregate Deal Consideration $512.58 billion

New Deals:

  1. The acquisition of Boingo Wireless (WIFI) by an affiliate of Digital Colony Management for $1.05 billion or $14 per share in cash.
  2. The acquisition of The Michaels Companies (MIK) by affiliates of Apollo Global Management (APO) for $5 billion or $22 per share in cash. We added MIK as a potential deal to the Deals in the Works section on March 1, 2021, and the price after the news of the potential deal came out was $16.85
  3. The merger of Severn Bancorp (SVBI) with Shore Bancshares (SHBI) for $146 million in a cash plus stock deal. Under the terms of the definitive agreement holders of Severn common stock will have the right to receive 0.6207 shares of Shore common stock and $1.59 in cash for each share of Severn common stock they own.
  4. The acquisition of Five Prime Therapeutics (FPRX) by Amgen (AMGN) for $1.69 billion or $38 per share in cash.
  5. The acquisition of Noble Midstream Partners (NBLX) by Chevron Corporation (CVX) for $3.32 billion in an all stock deal. Under the terms of the agreement, Noble Midstream would receive 0.1393 of a share of common stock of Chevron in exchange for each common unit owned. We added NBLX as a potential deal to the Deals in the Works section on February 5, 2021, and the price after the news of the potential deal came out was $13.30.

Deal Updates:

  1. On March 1, 2021, CoreLogic (CLGX) confirmed that it received a revised proposal from CoStar Group (CSGP) to acquire CoreLogic. Under the terms of the revised proposal, CoreLogic shareholders would receive $6 per share in cash and 0.1019 shares of CoStar Group common stock in exchange for each share of CoreLogic common stock.
  2. On March 1, 2021, shareholders of China Biologic Products Holdings (CBPOapproved the company’s merger with CBPO Holdings Limited and CBPO Group Limited at a special meeting of shareholders.
  3. On March 2, 2021, shareholders of Navistar International Corporation (NAVapproved the company’s merger with Traton SE at a special meeting of shareholders.
  4. On March 4, 2021, shareholders of MTS Systems Corporation (MTSCapproved the company’s merger with Amphenol Corporation (APH) at a special meeting of shareholders.

Closed Deals:

  1. The acquisition of Acacia Communications (ACIA) by Cisco Systems (CSCO) on March 1, 2021. It took 602 days for this deal to be completed.
  2. The acquisition of Eaton Vance (EV) by Morgan Stanley (MS) on March 1, 2021. It took 144 days for this deal to be completed.
  3. The acquisition of TC PipeLines (TCP) by TC Energy Corporation (TRP) on March 3, 2021. It took 78 days for this deal to be completed.
  4. The acquisition of PRGX Global (PRGX) by Ardian on March 3, 2021. It took 70 days for this deal to be completed.

Top 10 Deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
DOYU 10/12/2020 HUYA Inc. (HUYA) $19.10 $14.7 06/30/2021 29.96% 95.09%
APHA 12/16/2020 Tilray, Inc. (TLRY) $18.13 $15.71 06/30/2021 15.39% 48.85%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $22.4 12/31/2021 14.96% 18.26%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $135.32 $119.95 12/31/2021 12.81% 15.64%
WLTW 03/09/2020 Aon plc (AON) $251.38 $228.02 06/30/2021 10.25% 32.52%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $56.00 $51.06 12/31/2021 9.67% 11.81%
CXDC 06/15/2020 Faith Dawn Limited and Faith Horizon (N/A) $1.20 $1.1 05/10/2021 9.09% 51.85%
ALXN 12/12/2020 AstraZeneca (AZN) $162.09 $150.1 09/30/2021 7.99% 14.09%
OSN 12/17/2020 New Ossen Group Limited (N/A) $5.10 $4.73 06/30/2021 7.82% 24.83%
IPHI 10/29/2020 Marvell Technology Group Ltd. (MRVL) $162.43 $150.65 12/31/2021 7.82% 9.54%

List of all pending deals:

The list of all pending deals is only available to InsideArbitrage Premium and Plus members.

Conclusion:

Four out of the five new deals announced last week were multi-billion dollar deals. The aggregate deal consideration has hence increased to $512.58 billion this year. On the SPAC front, the number of new IPOs continued to rise significantly last week in spite of all the speculation about the SPAC frenzy fading out. Just like there were opportunities on the long side of the SPAC trade, we are likely to see interesting opportunities on the short side after some of the more speculative SPAC business combinations stumble in the coming years.

Disclaimer: I have long positions in Change Healthcare (CHNG) and Otelco (OTEL). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

Connect with me on LinkedIn: http://www.linkedin.com/in/asifsuria or follow me on Twitter@asifsuria

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