Sustainable Opportunities Acquisition Corp., ticker SOAC, is risk free buy at $10/share.
Merger target expected to be identified soon.
With market turbulence a distinct possibility due to the upcoming election, the lack of a near-term stimulus bill, and the ongoing COVID pandemic, investing in SOAC common shares at $10/share makes a lot of sense. You’ll have an essentially risk-free investment from current levels even with the market sliding. You’ll also have the potential for a very large upside move that I believe will take place between now and early 2021 (more on that below).
“SPACs” for newbies
While SPACs (special purpose acquisition company) aren’t new, they’ve been blazing hot in 2020. The founders of SPACs, the companies being taken public, and institutional investors are realizing the benefits of taking the SPAC route over traditional IPOs. And for retail investors who can’t access pre-IPOs because they’re not “accredited investors”, SPACs can level the playing field a bit.
That said, if you’re new to SPACs I strongly urge you to learn about them before jumping in. They’re very hot right now, and a lot of newer investors are buying SPACs without understanding them. There’s an excellent overview of SPACs here on Reddit, of all places. Compared to the “SPAC 101” resources I’ve seen on more high-brow investing sites, this one rules by how clear, concise, and accurate it is.
SOAC: The right target, management, and size
- Opportunity to reduce CO2
- $100+ million of EBITDA
- $1 – 3 billion of enterprise value
- Enterprise customer orientation
- Demonstrated market
- Double digit revenue growth
- Margin upside
These ingredients should result in merger that appeals to both cleantech investors as well as fundamental/value investors. As I wrote previously, the strong uptrend in cleantech investments is firmly established. Moreover, it will continue as technology improves and societal pressure for climate action increases. This is especially true if Biden/Harris win the election in just a few weeks.
The target will also have an ESG (Environmental, Social and Governance) focus according to SOAC’s management. ESG criteria are used by socially responsible investors and shareholders to screen investments and assess a company’s impact on the world. The investment style has gained huge momentum recently, (see ESG index funds hit $250 billion). Additionally, ESG funds outperformed the market in 2019, and look to do the same this year.
The cleantech, ESG, and solid fundamental attributes SOAC is targeting for should result in a strong win for SOAC investors. Additionally, by having a well-defined cleantech/ESG/fundamentals focus, SOAC will attract investors who are more likely to be pleased with the target. As a result, there should be fewer redemptions when the merger comes to a vote.
Strength of management is one of the most important indicators of success for SPACs. Finding the right target is the easy part. Negotiating terms of the merger is where the real work comes in. Having team that’s well-versed in M&A and knows how to reel in a target successfully is essential. SOAC has what it takes in this department, from both management and the Board of Directors.
SOAC is an “operator-led SPAC”
An operator-led SPAC has management with operational, C-suite experience vs. financial/investing experience alone. The CEO of SOAC, Scott Leonard, previously served as CEO, CFO, President, and board director of public and private companies.
In a very recent study by McKinsey & Company, SPACs that are operator-led strongly outperform investor led SPACs from day one, going out 12 months from merger.
According to McKinsey, operator-led SPACs behave differently from other SPACs in two ways: they specialize more effectively, and they take greater responsibility for the combination’s success. Furthermore, an operator’s expertise may serve an important role in helping the SPAC narrow and vet its targets, then in exercising influence over the combination’s governance.
Target should be known soon
The SOAC web site is clear in their timeline to identify a target, stating: “Targeting a business combination in late 2020 or early 2021” on the home page. That said, it’s always possible that it could take longer. Fonts on a web site aren’t written in stone. However, I’ve learned that when a SPAC announces their timeline in advance, believe them. Chances are, SOAC management had several targets in mind even prior to their own launch. Subsequently, they may have been in negotiations with one or several targets since March. The announcement could come any day now.
With a $300M SPAC, SOAC can target a company with an enterprise value between $1-3 billion. There’s a good number of cleantech unicorns out there to choose from. Some possibilities I’ve seen mentioned or that I’m speculating on myself include:
- PureCycle Technologies, which uses a patented recycling process to convert a multitude of different plastic wastes into ultra-pure recycled polypropylene. The technology closes the loop on the reuse of recycled plastics and the company is rapidly growing.
- Proterra, OEM of electric buses just raised $200M , which doesn’t rule it out as a target, but it may be less likely now.
- Ronn Motor Group is flying well under the radar for most retail EV investors, but they’ve apparently been approached by “several SPACS and are currently in discussions“. I think there’s a lot to like under the Ronn Motor Group hood, with graphene-plated fuel-cells and JVs in China.
- Bollinger Motors and Lucid Motors are other potential EV targets within the reach of SOAC. Personally, I think Bollinger would be very popular target with investors. There’s a ton of great press on the company from motor industry types, praising the company and the trucks.
- Sungevity, which designs home solar systems, finances them, and manages system installation, maintenance, and performance. Sungevity has had a checkered past though, and it would be a turnaround play that I’m not sure would appeal to many investors.
- Invenergy, owns and operates large-scale renewable and clean energy generation and storage facilities worldwide with a large number of past, present, and future projects.
Chances are good that the target will be none of the above. But with SOAC’s operator-led team, ESG and cleantech focus, $1-3 billion enterprise value of the target, and the emphasis of $100+ million in EBITDA, I believe whatever the target is, SOAC common shares, warrants, and units will appreciate significantly from current levels.
I own shares and warrants in Sustainable Opportunities Acquisition Corporation (SOAC). I have not been paid by SOAC or any third party for this article.
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