Wall Street’s dream week, crazy week for the IPO market

by tradmin

“U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks.”

23 new IPOs were listed at NYSE and Nasdaq combined, making it one of busiest week in Wall street in last few years. Wall street is for visionaries, people who can look forward and measure up the market moves. It’s not for people Reminiscing the past and wallowing in its sorrow. Corona pandemic was past and the recovering economy, potential successful vaccine and rising sentiments among investors are already showing signs. Wall street has always been front runner and rightly so. The last week has seen crazy amount of IPO activity in the market and many more billion-dollar companies are soon to follow.

Snowflake’s share soared on the first day of trading with its valuation doubled from $33 Bn to over $70bn, making its initial public offering the largest ever for a software firm. Snowflake is a cloud computing company, that went public on NYSE on 16th Sep 2020 and raised $3.36 Bn. The overenthusiasm among the investors pushed the first day trading price to $245 — more than double its IPO price — in New York trading. Multiple VC and early stage investors have been able to mint billions of dollars from the IPO. The share got additional traction after the investment interest from Ventures and Berkshire Hathaway.

JFrog a DevOps software development company also went public on 16th Sep 2020 with IPO priced at $44 raising $509 Mn at the company valuation of just about $4 Bn. By end of the day JFrog’s stock soared 47.3%, closing at 64.79. JFrog was reportedly valued at $1.5 billion last year and IPO provided a huge valuation boost to the company. The soaring valuation of the company shows how much the investors are willing to pay for high growing SaaS company.

Unity Software went public with a blockbuster IPO this Friday, with its price jumping 44% by the end of the day. The company raised proceeds of around $1.3 Bn by selling 25 million shares at $52. Its stock raised as high as $76 in early day trading lifting company’s valuation to around $20 Bn. Unity is world famous gaming development studio that is known for hits such as “PokemonGo”, “Call of Duty:mobile” etc. Unity expected its IPO price to be round $34 – $42, but the enthusiasm about the stock among the public helped company go with IPO at $52. Sequoia Capital and Silver Lake were the biggest investors in Unity before the IPO, with Sequoia owning more than 24 per cent. Unity reported loss of $54 Mn this year, even though its revenue is on the rise, reporting $351 Mn earnings last year, 39% up from previous year. Gaming is the fastest growing segment in media category with 2.5 billion gamers worldwide and $140 Bn in revenue which is also consistently rising exponentially.

Sumo Logic: Sumo logic was the third venture backed software company listed this week, on 17th Sep 2020, on the exchange with the price above its anticipated range. The company raised $326 Mn with shares priced at $22, with the day closing at 26.8 a 22% jump in the closing price. Sumo logic is pioneer in continuous Intelligence with applications across digital transformation, cloud computing and analytics. Sumo like many others going public this week has shown solid revenue growth but also equitably growing losses. But the multiple times oversubscription of the company shares and the rising stock price shows the confidence investors have on the company and its growth potential.

Investors are bullish on the market and wall street is riding on the positive wave. Past few weeks have seen strong IPO activity after a long dull period, with 23 new IPO listed on NYSE and Nasdaq just this week. List of IPO listed during this week:

Billions of dollars have changed hands with number of VCs and early stage investors making big exits. Just a month ago when the companies were worried sick about corona and its potential impact on the investments and their portfolio, last few weeks have seen a complete shift in scenario. Sequoia a leading VC was largest owner of Unity, had 8.4% stake in Snowflake and some ownership in Sumo Logic had around $9 Bn worth in these three companies, earning health profits with exits. Many other investors have seen a profitable run and the IPO fever is not expected to end any time soon.

Whatever be the reason, be it the recovering economy from the pandemic, be it the strengthening investor sentiment or be it the escape from the future political uncertainty from elections IPO market is up and running. U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks. 

Busting the 60:40 myth

by tradmin

“The premise of SPACs relies heavily on the reputation of the SPAC founder – their ability to raise funds from a broad group of shareholders”

Private Equity returns have beaten public market returns over the last 10, 15 and 20 year period

A 30-year investment of 10,000$ in S&P 500 would amount to 76,312$, whereas the same amount in a private equity fund would become a whopping 211,071$ – a 20x return

Individual investors allocated less than 5% of their investments to alternatives, compared to 26% by pension funds and 57% by endowment funds. America’s largest public pension plan, CalPERS put $7 billion into private equity during the 2018-2019 fiscal year. “We need private equity, we need more of it, and we need it now,” chief investment officer Ben Meng said in early 2019

The case for alternatives is well understood by HNW (High Net-Worth) investors: for instance, 67.5% of the registered investment advisors surveyed said their HNW clients are interested in private equity. And yet, on average only 10% of their client base is investing in private equity funds

In view of worldwide rising volatility and disruption, alternatives are well suited to create value through selection and a record 1.7 trillion dry powder ready to invest

Disruptive technologies, such as artificial intelligence, are helping fund managers to improve operational efficiencies while creating new opportunities for investment

Over the past 20 years, alternative investments have surged tenfold from a trillion dollars to 10 trillion USD compounding roughly at 12% per annum and slated to grow to 14 trillion USD by the year 2023. 

You may ask what are alternative investments? Alternative investment is a financial asset that does not fall into traditional investment categories like stocks, bonds or mutual funds. These include, but are not limited to private equity, private debt, hedge funds, real estate, infrastructure and natural resources.

Over the last few decades private markets have grown significantly in scale and complexity and are rife with opportunities. Quite simply put, alternative investments provide higher returns and lesser volatility as compared to private markets as we can see from the data of the last two decades.We inspect in detail how SPACs work, how has been the performance of SPACs in the past, and whether it is a fad that would fade away soon or meant to stay on.

Source – Committee on Capital Markets Regulation and Voya Investment Management (October 2017)

By investing in alternatives, an investor can easily diversify their portfolio and control risks. According to a study published on, more than half (53%) of millennials favor alternative investments over ‘traditional diversification’. People all over the world are realizing the potential of such investments and the train is about to leave the station. Googling “liquid alternatives” yields 119 million results in half a second.

The pandemic has ruined businesses and all over the world, companies in certain sectors are being sold for cents on the dollar. Private equity companies are sitting on a cash pile of 1.7 trillion USD and are ready to take advantage of these distress opportunities and primed to push for higher deal-making. According to a PwC report, PE firms are looking to increase investments across TMT – technology, media, and telecom in the coming months as the sector has shown more recession resiliency relative to other industry groups.


Further reasons why seasoned or ‘accredited investors’ should make the shift towards alternatives are:

Public Markets are overcrowded and expensive – Over the last 10 years, stock market valuations have kept on increasing year on year and as of September 11, 2020, the P/E ratio of S&P 500 has reached 28.72 compared against the historical average between 13 and 15. Overcrowding in the public markets has led to such high valuations and earnings are simply not matching up to these crazy valuations. For example, TESLA trades as 970 times its earnings, and Hilton Hotels trades at 728 times its earnings. There are fewer public companies (number of listed companies have decreased 39% in the last 25 years) and companies are waiting much longer in their life cycle to go public (average age of US tech cos which went public was 4 years in 1999, which had risen to 11 years by 2014).

Private Markets Opportunities Growing – There are around 400 unicorn startups (private companies that are valued above $1 bn). With large companies and funds willing to back these companies, they don’t have a huge incentive to go public to raise funds. These companies are remaining private longer because it allows them to think and act more strategically, which means that equity investors have less access to the market as a whole. Alternative investments allow individual investors to gain access to this asset class which is designed to take advantage of volatility, dispersion, and dislocations are particularly well suited and may provide returns that have low correlations to traditional betas. The industry has crossed the 10 trillion barrier and with over 12,000 active alternative asset management institutions, the numbers are just going to grow. Furthermore, more and more fund managers are deploying artificial intelligence & machine learning (AIML) technologies to stay ahead of the curve.

More sources of information available to investors – Individuals have much higher access to information regarding private markets. There are hundreds of financial research software that can help an investor conduct proper due diligence on private companies as well as private equity funds. Some of the most used databases are Pitchbook, CB Insights, Mattermark, Tracxn, S&P Capital IQ, Eikon, and the Bloomberg Terminal. Apart from providing investors with quality data, some of these platforms also allow for making models and risk analysis. The free internet also has huge coverage of private companies and markets which enable an investor to make a rational decision.

Change in regulations paving way for easier access to private markets – The Securities and Exchange Commission in the USA is changing the way alternative investments are going to be regulated. Chairman Jay Clayton has said he’s eyeing an overhaul of all regulations around private placements, with the intent of making them more accessible to individual investors. It appears the democratization of alternatives is an SEC priority. In fact, its December press release recognizes the key role that pooled investment vehicles, including private and regulated funds, can play in providing a more level playing field for individual investors and allow them to gain from excess or uncorrelated returns from participation in the private markets. The European Commission has issued its much-awaited report on the Alternative Investment Fund Managers Directive (AIFMD). The report is short – only six pages of substance – but gives a clear sense of the direction of travel.

Asset owners’ evolving needs – Asset owners are looking for ways to optimize their alternatives allocations, with goals that extend beyond performance and diversification. In many instances, investors are seeking strategic relationships with alternatives managers that have the potential to create value on several levels. Investors want to invest in causes or technologies they are personally interested in. The new-age investor also wants to invest in companies following ESG (Environmental, Social, and Corporate Governance) norms. According to consultancy firm Mercer, more than three-quarters of respondents (76 percent) incorporate ESG criteria when investing in alternative asset classes and that most believe ESG improves risk-adjusted returns and is an important aspect of risk and reputation management. New platforms are emerging which allows for customization in the alternatives. iCapital in the US, Moonfare in Europe, and Torre capital in Asia are changing the way people invest in alternatives.


While we advocate for allocation to alternatives, we don’t want to wish away the inherent risks. Some of the risks while investing in private markets are:

Illiquidity – While private markets are gaining higher liquidity over time with the deepening of the secondary market and lingering overhaul of regulations, certain assets in private markets are highly illiquid and an investor must be aware of the amount of time their capital may be locked for 5-10 years. Only dedicate that portion of your portfolio which you are comfortable investing for long term, and where a little bit of volatility would not unnerve you.

Smart Allocation: We at Torre Capital do not recommend investors to allocate more than 10% of their portfolio to alternatives across asset classes. It is always better to ask for advice and understand the role of alternatives in your portfolio given your current asset allocation and your financial goals before you make your first investment. Smart allocation that allows you to stick to your investing plan would always yield higher returns than investing just based on returns offered or relative “hotness” of an asset class.

Novice Effect – During the cryptocurrency mania in 2016, everyone wanted to jump on the bandwagon rather than regret missing out on a huge opportunity and a lot of amateur investors lapped up various cryptocurrencies only to suffer a major crash and lull for a long-time. Although interest in alternatives is heating up, novice investors should do proper due diligence of where their money is going and not bet on gambles promising enormous returns.

Manager Selection – Manager selection in alternatives matters. Unlike in public equities, where the difference between top- and bottom-quartile managers in any one-year averages about 2.5 percent, in private equities that spread approaches 20 percent. Picking the right or wrong manager matters hugely if an investor is looking for discretionary portfolio management.


We at Torre Capital pride ourselves on our promise to always look out for our investor interests. Irrespective of incentives offered, we only bring investments that make sense for our investors. Our motto is principal preservation over principal protection, and we conduct multiple levels of due diligence before offering an investment on our platform. We request you to always do your homework before investing, and reach out to us in case of any queries!

Momentus will have approximately $310 Million in cash on the balance sheet, to be funded by Stable Road’s $172.5 Million of cash held in trust (assuming no redemptions) and $175 Million from a fully committed common stock PIPE at $10 per share, including investments from private equity growth investors, family offices and niche top-tier public institutional investors.


Understanding SPACs Better

by Sandeep Kumar

“The premise of SPACs relies heavily on the reputation of the SPAC founder – their ability to raise funds from a broad group of shareholders”

We inspect in detail how SPACs work, how has been the performance of SPACs in the past, and whether it is a fad that would fade away soon or meant to stay on.

SPACs are a major movement in the IPO world right now. Over the past few years, firms such as Nikola, Draft King, and Virgin Galactic have all joined the market through SPAC (Special Purpose Acquisition Companies). This has been a record year for SPACs with nearly $34.6 Billion in SPAC gross proceeds so far in 2020. That’s 3-4 times higher than the $12.1 Billion in gross proceeds in 2019 and the $9.7 Billion in 2018, as per Dealogic.

These structures, also known as blank check companies give private firms an alternative to an otherwise costly and time-consuming IPO process, making them hugely successful these days. Some investors see strong potential in SPACs and claim them to be a more effective way for firms to go public, but serious critics suggest they encourage backdoor transactions that are not worth the risk and promote opacity.

How do SPACs work?

SPAC mergers are very similar to a reverse merger. They are generally formed by investors with expertise in a particular industry or business sector to pursue deals in that area. While forming a SPAC, the founders sometimes have at least one acquisition target in mind, but they explicitly don’t identify that target to avoid disclosure requirements needed during IPOs. Hence, the name blank check companies. Many have argued that companies like Nikola and DraftKings wouldn’t have made been able to go through the normal IPO process because of the strict due diligence involved in a typical IPO.

Investors who buy stocks in the IPO have no idea what company they are ultimately going to invest in. They are effectively buying the target company’s IPO in advance (say Virgin Galactic) without knowing the essence of what the target company does and the price that will be paid by the acquiring company (say Social Capital Hedosophia Holdings Corp). It is important to note that these deals will be usually structured in such a way that if the investors don’t like the target company they can get their money back by just backing out of the deal before the merger closes.

Unlike normal belief, SPACs don’t seem to be cheaper than traditional IPOs. They pay underwriters and institutional investors a fee of around 5-6% of the sum raised and gives the founder up to 20% of the shares for free. Even after accounting for the additional cash brought in by SPAC’s sponsors and other friends and family, SPACs aren’t any less expensive than IPOs today.

With a conventional IPO, promoters and directors, and officers sign a lock-in for 180 days from the IPO date. For a SPAC IPO, the standard lock-in period ranges up to one year after the close of the closed merger or De-SPAC deal, subject to early termination of the common stock sell at a fixed price (generally $12 or above) for 20 out of 30 trading days beginning 150 days after the closure of the De-SPAC transaction.

The money earned by the SPAC is deposited into an interest-bearing trust account. The funds are only used to make an acquisition or to refund the capital to stakeholders when the SPAC is liquidated. SPACs normally have two years for getting completed or winding-up. Some instances include the SPAC’s working capital being funded by the interest received from the trust. Following the acquisition completion, a SPAC is listed on one of the prominent stock exchanges.

In our opinion, the fees and structure for SPACs would continue to whittle down and can become better than IPOs where bankers have created high-cost structures. Our primary concern is all-around compliance, investor rights’ protection, initial and ongoing disclosures, and scrutiny that make it safer for the general public to invest through an IPO. Unless SPACs can match IPOs in terms of transparency and reporting and third-party scrutiny (analysts industry experts), they will continue to be the domain of a small bunch of fund managers and institutions engaged in dodgy financial engineering. As the overall crypto industry has realized that being regulated has its benefits, SPACs will need to evolve to have the same or better standards than IPOs.

The biggest SPAC deals made thus far

Pershing Square Tontine made waves in the rapidly growing SPAC space with its July debut. The firm raised $4 Billion with its IPO, a record for such investment vehicles and a new sign of Wall Street’s obsession with SPACs. The stock is currently trading at a share price of $23.90.

Churchill Capital Corp III, and MultiPlan Inc. entered into an agreement to merge in a deal worth $11 Billion that will take the U.S. healthcare services firm public. The deal will expand MultiPlan’s data analytics platform and is the largest SPAC merger ever. The merged company will be listed on NYSE and will operate under the name MultiPlan.

MultiPlan will receive up to $3.7 Billion of new equity that will reduce the firm’s debt. The transaction includes $1.3 Billion worth of common stock at $10 a share and $1.3 Billion in convertible debt that will be convertible at $13 per share.

Blackstone-owned Vivint is also one of the biggest corporations to enter into a SPAC arrangement since the IPO. Blackstone had explored an IPO or sale of the technology company and ended up merging with a SPAC raised by SoftBank’s Fortress Investment Group, in a deal valued at $5.6 Billion including debt.


The SPAC and PE camaraderie

The SPAC burst is taking place at a time when trillions of dollars are sitting in private equity and venture capital funds. For institutional buyers, SPACs serve as an incentive to buy into glittering businesses that would otherwise stay private. Analysts claim that these cash shell structures remain a lousy gamble for average investors. The majority trades at less than $10-$12 per share, the regular price at which SPACs first sell their stock to the public.

For private equity funds, they have a strong economic interest in the company due to less upfront spending. A private equity fund financing a SPAC typically purchases between 2% and 3% of the shares on the public listing, more often by buying businesses via SPACs to pay down their obligations more efficiently.

For 21% of the founders of SPACs, an institution is either linked to a private equity fund or one of the managers is operating a private equity portfolio simultaneously.


Why are SPACs so popular now when they have been around since the 1980s?

In the 1980s, SPACs acquired a shady reputation tied to penny stock frauds. In the past two decades, new laws and regulations helped add credibility to bolster investor confidence. SPACs have an appeal to private companies that wish to go public in this volatile environment because SPACs guarantee the transaction at a certain valuation as opposed to the IPO which are seen as riskier and may or may not go through once documents are publicly filed. For example, WeWork’s IPO got scuttled once it published its details and intense scrutiny of the company led investors to back out.

It can take months for companies to negotiate pricing, file documents, get necessary approvals and then finally list on stock exchanges SPACs have an edge here where companies can work with stakeholders that understand them well and can conclude transactions quickly. Given the long timelines associated with an IPO, the valuation of the underlying company can also take a nosedive.

IPOs require significant private information to be made available to the general public for scrutiny. A large number of companies, especially tech companies are uncomfortable disclosing such details and may instead want to go through the SPAC structure which has lower disclosure requirements.

Businesses going public through SPACs in 2020 have had higher valuation and share price growth than traditional IPOs; in September, United Wholesale Mortgage went public in the latest SPAC transaction with a valuation of over $16 Billion.
With the quality of management teams improving, SPACs are gaining traction and more institutional investors and HNIs are buying in. With SPAC funds getting bigger, the scale of blank check deals is also expected to increase.

A lot needs to be done before SPACs go mainstream

One of the biggest issues is that firms going public via SPACs can afford to bypass critical oversight and intense scrutiny, unlike conventional IPOs. For example – Nikola, who went public via the SPAC a few months ago has turned out to be the focus on multiple allegations lately. Federal authorities have since begun to pose questions and the SEC is also investigating how SPACs report their ownership and how compensation is related to the purchase.

Investors are at greater risk compared to IPOs as they do not know the target investee company at the time of investment.

SPACs may prove to be quite expensive. In certain blank-check transactions, the founders of SPAC have the right to purchase 20% of the resulting public business at rock-bottom valuation. For example, initial shareholders of Social Capital got 20% of the Company at $0.002 per founder per share while the public shareholders got the remaining 80% at $10 per share.

Target firms also give up more power as they sell to a SPAC that has its operating staff in place. They are therefore subject to a vote and control by the owners of the SPAC. This can lead to deal cancelations even after the announcement. 

Analyzing the performance of previous SPACs 

We analyzed 50 SPAC merger deals that happened between 2015-2019 and how they are faring now. Are they profitable, what share price are they at now and how does the valuation look like? Look at the table attached in Annexure I for the detailed analysis.

While Nikola Corporation has been the biggest loser after its SPAC merger closed, its valuation has dropped by more than 50%, and currently stands at $7.14 Billion. The biggest gainers have been in the healthcare segment, financial services, analytics, and consumer goods. For Immunovant and AdaptHealth in the healthcare segment, the valuations have soared by more than 85%. For SaaS firms like Clarivate Plc, the valuation leap has been a colossal $5.7 Billion. Open Lending Corp which focuses on lending now has a share price of $26.12 with a valuation higher by 80% than its SPAC price.

The underlying fact is although some good names get benefitted from the SPAC route, total losses outnumber profitable SPACs. The majority of companies have not been able to perform well. Talking about the 50 deals that we analyzed, 37 of them (74% of total) now have current share price trading at less than $10 per share with a current average market capitalization of less than $250 Million. The number further disappoints as 40% of those firms end up with share prices trading at less than $5 in the stock market.

Upcoming SPACs

On 7th October, Momentus Inc. reported its intent to sign a merger agreement with Stable Road Acquisition Corp Momentus offers a “last mile delivery” service for spacecraft, with a transfer vehicle that helps deliver satellites from a rocket to a specific orbit. The merging business entity will be named Momentus Inc. after termination of the deal and its shares are to be listed under the ticker symbol “MNTS” on Nasdaq.

This merger will create the first publicly traded space infrastructure company. Strategic partners and clients include Lockheed Martin and veterans like SpaceX and NASA. The combined company will have an estimated valuation of approximately $1.2 Billion following transaction close in January 2021.

Post-merger Momentus will have approximately $310 Million in cash on the balance sheet, to be funded by Stable Road’s $172.5 Million of cash held in trust (assuming no redemptions) and $175 Million from a fully committed common stock PIPE at $10 per share, including investments from private equity growth investors, family offices and niche top-tier public institutional investors.

Will SPACs fare in the long run?

Bill Ackman’s SPAC which recently raised $4 Billion for his Pershing Square Tontine Holdings is by far the largest SPAC ever raised. There will be no founder’s stake in the company saving up on huge SPAC fees. If the SPAC succeeds in taking a large private company public – this will be the best proof of concept for the SPAC structure.

The premise of SPACs relies heavily on the reputation of the SPAC founder – their ability to raise funds from a broad group of shareholders. A blank check company is a testament to the faith that the investors have in that person’s ability to find and execute a good deal. We believe that the future of blank check companies remains doubtful. Investors find SPAC deals as a better way to go public, while critics argue that the SPAC boom is just a trend that isn’t destined to last in the long run.

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