Ermenegildo Zegna: Continue Cleaning Up SPAC Debris

May 18, 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, an interesting example of investment opportunity in the SPACs space.

Today we continue with luxury fashion company Ermenegildo Zegna. In July 2021 it announced a merger with Investindustrial Acquisition Corp, a special purpose acquisition company sponsored by an affiliate of the Investindustrial which was founded in 1990 as an independent investment group with financial backing from the Bonomi family.

Zegna currently has a market capitalization of about $2,573 mil (assuming exercise of warrants to purchase 20.1 mil addition shares at $11.5 per share) and we estimate Enterprise Value at about $2,561 mil.

Company currently trades at an EV/EBITDA (FY 2021 Adj EBITDA) valuation multiple of x8.02 (x7.13 based on EUR/USD FY 2021 average exchange rate of 1.1819).

Assuming a 12.5% annual growth rate in Adj EBITDA and a x10 EV/EBITDA valuation multiple, in three years its shares could be valued at $20.5.

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

We think that Ermenegildo Zegna 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.