APi Group Corporation: Continue Cleaning Up SPAC Debris

June 17, 2022

We wrote about SPACs few times, back in 2018 “Investing in SPACs: How To Do It Right” and even back in December 2016 we suggested an attractive investment opportunity in shares of Nomad Foods “Nomad Foods: Story and Narrative For A 100% Return” as an example of our approach and what type of SPAC might be attractive to investors.

After huge wave of SPACs that followed in 2019-2021 we wrote that “SPACs Revolution Turns Into Public Equity Market Transformation” and both cautioned investors but also emphasized the fact that SPACs possess certain characteristics similar to spin-offs and with due caution attractive investment opportunities could be found in this niche as well.

We feel that now it is a good time to start cleaning up SPAC debris and start looking for attractive and sound investment opportunities in this space.

Merger or acquisition by SPAC vehicle of an operating business represents an important corporate event. Similar to spin-off it becomes an important turning point in company’s story.

Many companies that merge with SPACs try to sell investors a growth or transformation story for the next three or five years.

Recently we highlighted Ardagh Metal Packaging and a luxury fashion company Ermenegildo Zegna as interesting examples of investment opportunities in the SPACs space.

Today we continue with APi Group Corporation.

In October 2019 J2 Acquisition Limited special purpose acquisition company completed acquisition of APi Group, a market-leading provider of commercial life safety solutions and specialty services for $2.9 billion.

In July 2021 APi Group (after company was renamed) agreed to acquire Chubb Fire & Security unit from Carrier Global Corp for approximately $3.1 billion including debt.

Acquisition was completed in January 2022.

APi Group currently has a market capitalization of about $3,426 mil and we estimate Enterprise Value at about $5,922 mil.

Company currently trades at an EV/EBITDA valuation multiple of x8.77 (based on company’s Adjusted EBITDA guidance for FY 2022).

Assuming a 10% annual growth rate in Adj EBITDA and a x10 EV/EBITDA valuation multiple, in three years its shares could be valued at $32.2.

This would provide an upside of 119% percent over next three years.

We think that APi Group is an interesting option for investors looking at the SPAC space from an event-driven and value investment perspective and it has an interesting story.