RMG Acquisition Corp. (NYSE:RMG), is actually resembling a unidirectional stock play lately, with the SPAC’s shares relentlessly pursuing an upward trajectory. As an illustration, RMG Acquisition has registered a achieve of over 28 % simply this week, spurred by its approaching merger with Romeo Energy, an organization that designs and manufactures lithium-ion battery modules and packs for industrial electrical autos. In at this time’s pre-market, the stock is up one other 10 %.
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Readers ought to observe {that a} Particular Objective Acquisition Firm (SPAC) doesn’t possess any intrinsic value. Quite, that is principally an funding automobile that makes use of its IPO proceeds to accumulate a personal firm. Oftentimes, institutional buyers inject essential liquidity in a SPAC – dubbed a PIPE funding – and, in return, obtain shares of the mixed firm at a reduction. This can be a cost-efficient technique for a personal firm to drift its shares on the stock exchange and has been gaining reputation as a result of alternative for buyers to earn a riskless arbitrage.
With the primer out of the best way, let’s focus on why buyers maintain bidding on RMG Acquisition. The reply is pretty easy: Romeo Energy. To wit, Romeo already has contracted income of round $310 million, with an additional $2.four billion in income at the moment underneath negotiation. The corporate presents three foremost variants of its battery pack:
(Supply: Investor Presentation)
Romeo is a beautiful guess for electrical automobile OEMs because it presents flexibility, manufacturing scalability, enhanced security options, and a longtime recycling program. The corporate expects to earn annual income of $412 million in 2022. Nonetheless, by 2025, its top-line metric is predicted to swell to $1.65 billion, constituting progress of round 300 %! Given this stable progress profile of Romeo Energy, it’s hardly stunning that buyers proceed to absorb RMG Acquisition’s shares within the pre-merger part.
This brings us to the crux of the matter. On Wednesday, the 25th of November, RMG Acquisition filed a Type 425 with the SEC, intimating the first of December 2020 because the date of file for the dedication of stockholders eligible to obtain the proxy and vote on the upcoming particular assembly. Keep in mind that the particular assembly is likely one of the most important steps in a SPAC’s try to accumulate its goal firm because the shareholders accord their formal approval of the proposed merger at the moment. Wednesday’s announcement supercharged RMG Acquisition’s positive factors because it indicated that the particular assembly of the SPAC’s shareholders is imminent.
Whereas it’s too early to label this ongoing rally in RMG Acquisition’s shares the results of an overexuberance, buyers ought to stay cautious as most SPAC mergers expertise a cooling-off interval after the closing of the deal. Consequently, buyers with a excessive value base – those who purchased the shares far above the SPAC’s NAV price – ought to think about shopping for some draw back safety within the type of places.
