So far, SPAC king Chamath Palihapitiya has launched six SPACs (special purpose acquisition companies). Social Capital Hedosophia Holdings IV (IPOD) and Social Capital Hedosophia Holdings VI (IPOF) haven't announced their merger targets yet. IPOD and IPOF raised nearly $400 million and $1 billion, respectively. Both SPAC stocks have fallen significantly over the last few weeks. Currently, they are trading near their 52-week lows. Are the stocks a buy after the crash?
Palihapitiya's first three blank-check companies took Virgin Galactic, Opendoor Technologies, and Clover Health public. Shares of Virgin Galactic and Opendoor Technologies have performed well. Meanwhile, Social Capital Hedosophia Holdings V Corporation (IPOE) has announced a merger agreement to take SoFi public.
IPOD and IPOF SPAC stocks are falling.
IPOD and IPOF SPAC stocks are down 39.6 percent and 39.9 percent from their 52-week highs, respectively. The stocks are falling as part of a larger market sell-off as investors reconsider their investments amid changing macroeconomic conditions including interest rates.
Palihapitiya’s SPACs also fell after Hindenburg Research said that Clover Health hid material facts from investors. The short-seller claimed that Clover Health is under investigation by the Department of Justice. The SEC started a probe into Clover Health after Hindenburg’s accusations. In January, Clover Health went public through a reverse merger with the Palihapitiya-backed IPOC SPAC.
Many SPACs, including Gores Holdings V (GRSV) and Malacca Straits Acquisition (MLAC), are trading under $10. GRSV is taking Ardagh Metal Packaging public, while MLAC is taking Asia Vision Network public.
Palihapitiya can find good merger targets for IPOD and IPOF.
The IPOD and IPOF SPACs are competing with each other. Both of them are looking for suitable acquisition targets. Currently, there aren’t any rumors about potential acquisition targets for IPOD and IPOF. Going by Palihapitiya’s impressive track record in SPAC mergers, he will likely find suitable merger targets for IPOD and IPOF.
IPOD or IPOF: Which SPAC stock should you buy?
At $11.05 per share, IPOD SPAC stock trades at a 39.6 percent discount to its 52-week high. At $10.70 per share, IPOF stock trades at a 39.9 percent discount. IPOD SPAC stock is trading 10.5 percent above its IPO price of $10, while IPOF’s premium over the IPO price is 7 percent. As a result, IPOF stock looks to be a good bet since investors are paying a higher premium for IPOD.
Investors who purchase SPAC shares before a merger is revealed are usually betting on the SPAC leaders' reputation and experience. Buying SPAC stock is a speculative investment until the merger deal closes. If Palihapitiya can’t find a merger target, investors will receive $10 apiece back—not what they’re paying to buy the shares.
IPOD and IPOF outlook
IPOD and IPOF intend to merge with companies in the technology sector. However, the technology market has expanded to also include green energy and fintech companies. As a result, it wouldn’t surprise me if the SPACs target companies from these sectors.