Should You Buy VGAC SPAC Stock Before It Finds a Merger Target?
Source: Getty Images

Branson's VGAC SPAC May Take 23andMe Public, Stock Surges

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Jan. 28 2021, Published 9:10 a.m. ET

VG Acquisition Corp. (VGAC) is a SPAC (special purpose acquisition company) formed by Virgin Group founder Sir Richard Branson. The blank-check company was formed with the focus of merging with private consumer companies. Should you buy VGAC stock before Branson finds a merger target?

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VGAC stock is trading at a 35 percent premium to its IPO price of $10, with no merger announcement. The stock closed at $13.55 on Jan. 27 after falling 0.7 percent that day. On Jan. 27, VGAC stock made a high of $16.16 on rumors that the SPAC could take DNA-testing company 23andMe public.

Who started the VGAC SPAC?

VGAC is led by Virgin Group founder Sir Richard Branson. Founded in 1970, Virgin Group controls over 400 companies in a wide variety of businesses. These include Virgin Atlantic, Virgin Mobile, Virgin Balloon Flights, Virgin Hotel, Virgin Voyages, and Virgin Radio.

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Should You Buy VGAC SPAC Stock Before It Finds a Merger Target?
Source: Getty Images

In 2004, Branson founded space flight corporation Virgin Galactic. In 2019, Virgin Galactic went public after completing a merger deal with Social Capital Hedosophia Holdings I Corporation (IPOA), the first SPAC formed by billionaire Chamath Palihapitiya. In 2017, Branson also founded Virgin Orbit, a company that offers launch services for small satellites. Virgin Orbit’s LauncherOne rocket reached orbit on Jan. 17 and deployed 10 satellites.

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The VGAC SPAC raised about $480 million in an October 2020 IPO. The SPAC sold 48 million units for $10 apiece.

Which company will VGAC merge with?

VGAC is looking to merge with companies in the consumer industry in Europe or the U.S. The SPAC also said that it wants to focus on sectors where Virgin Group has had success: health & wellness, technology & internet, travel & leisure, financial services, music & entertainment, media & mobile, and renewable energy & resource efficiency.

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Will VGAC merge with 23andMe?

On Jan. 27, Bloomberg reported that VGAC is in discussions to bring 23andMe public. Founded in 2006, 23andMe is a DNA-testing company that offers direct-to-consumer genetic testing services. According to Bloomberg, a 23andMe merger deal could be worth $4 billion. In its latest funding round in 2020, 23andMe had a $2.5 billion valuation.

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A deal could be announced in the next few weeks if discussions are successful, according to people familiar with the matter. Representatives for VGAC and 23and Me haven't commented.

Should I buy VGAC stock before the merger?

Investors buying SPAC stock before a merger is announced are usually betting on the reputation of the sponsors or SPAC leaders. Branson has a legendary track record, which should give VG Acquisition investors some confidence. Virgin Group CEO Josh Bayliss and CIO Evan Lovell are responsible for managing VG Acquisition.

VGAC stock could generate massive returns if Branson finds the right target company and the SPAC market doesn't sour. The stock has gained over 18 percent year-to-date and is trading 19 percent below its 52-week high of $16.16. Many SPAC stocks surge after the companies announced mergers. On Jan. 22, CLII SPAC stock rose 80 percent after the company said it would take electric vehicle charging company EVgo public.

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