It Is Time To Start Cleaning Up SPAC Debris

May 4, 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.

We think that an interesting example of investment opportunity in the SPACs space is Ardagh Metal Packaging company.

A leading provider of sustainable and infinitely-recyclable beverage cans, in August 2021 it merged with Gores Holdings V, a special purpose acquisition company sponsored by an affiliate of the Gores Group.

Ardagh Metal Packaging has significant growth plans for the next three years, expects to invest a total of $1.8 billion into capital expenditures (part of this amount is already invested) and expects to almost double Adjusted EBITDA over next three years as a result of these investments.

Company currently trades at an EV/EBITDA (FY 2021 Adj EBITDA) valuation multiple of x10.5. Assuming that it will be able to finance remaining capital expenditure program with cash flow generated by the business, in three years its shares could be valued at $14.5 (x10 EV/Adj EBITDA).

This would provide an upside of 100% percent over next three years.

We think that Ardagh Metal Packaging is an interesting option for investors looking at the SPACs space from an event-driven and value perspective and it has an interesting story.