Buy GWAC SPAC Stock on Dips Before the Cipher Mining Merger Closes

Good Works Acquisition Corp. (GWAC) SPAC is merging with Cipher Mining. Is GWAC stock a buy before the merger closes?

Ambrish Shah - Author

Mar. 10 2021, Published 9:57 a.m. ET

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Bitcoin mining company Cipher Mining is gearing up to go public through a reverse merger with Good Works Acquisition Corp. (GWAC). The GWAC SPAC raised about $150 million in an October 2020 IPO. What's the GWAC-Cipher merger date and should you buy the SPAC stock now?

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GWAC SPAC stock has gained 15.2 percent from its IPO price of $10 per share. On March 9, the stock rose 4.7 percent and closed at $11.52.

buy gwac spac stock before cipher merger
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Who owns GWAC?

In the October 2020 IPO, the GWAC SPAC offered 15 million shares for $10 each. The sponsor of the blank-check company is an affiliate of I-Bankers Securities. The GWAC SPAC is led by CEO and co-chairman Fred Zeidman, co-chairman Douglas Wurth, and president Cary Grossman.

GWAC-Cipher merger date isn't final, but it's imminent.

The GWAC-Cipher merger is expected to close in the second quarter of 2021. The transaction, subject to approval by GWAC shareholders and other customary closing conditions, is set to have a pro forma enterprise value of $2.0 billion. The combined entity will be listed on the Nasdaq under the ticker symbol “CIFR.”

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buy gwac spac stock before cipher merger
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GWAC Stock Price

GWAC and Cipher merger details

The deal will provide the merged entity with around $595 million in gross cash proceeds to fund growth initiatives. The amount includes about $170 million in cash held by GWAC in trust and an additional $425 million in PIPE (private investment in public equity). Investors in the PIPE include Fidelity Management & Research Company and Morgan Stanley’s Counterpoint Global. Existing Cipher shareholders are set to own about 70 percent of the combined company when the deal closes.

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Outlook for crypto miners

The outlook for crypto mining companies looks very promising. Cipher plans to become the largest-scale Bitcoin mining company in the U.S. with around 745 MWs of deployed capacity expected to roll out by the end of 2025. The rise in Bitcoin prices has triggered a buying spree in cryptocurrency mining companies like Marathon Patent (MARA) and Riot Blockchain (RIOT). However, Bitcoin prices might see a correction this year after the sharp rise in 2020.

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According to Warren Buffett, Bitcoin and other cryptocurrencies are worthless and risky. Some analysts and investors, like billionaire Chamath Palihapitiya, predict more upside for Bitcoin.

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GWAC SPAC stock looks like a buy before Cipher merger

GWAC valued Cipher at a pro forma implied equity value of $2.5 billion. Meanwhile, at GWAC’s current stock price, Cipher is valued at around $2.88 billion. In comparison, Marathon Patent and Riot Blockchain have market capitalizations of $3.45 billion and $3.52 billion, respectively.

Cipher expects to generate sales of $6 million in 2021 and forecasts its sales growing by 5,418 percent in 2022 and 86.1 percent in 2023. The company expects sales of $1.0 billion in 2025, which would mean a 2025 EV-to-sales multiple of about 2.0x. Cipher's 2025 EBITDA margin of around 75.5 percent also looks good. Based on the company's strong growth outlook and valuations, GWAC stock looks like a good buy. However, the stock is a speculative play until the Cipher and GWAC deal closes.


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