Bull Horn Holdings (NASDAQ: BHSE) recently announced that it has reached a final merger agreement with Coeptis Therapeutics (OTC: COEP), a biopharmaceutical company developing platforms for cellular therapy to treat cancer patients. Bull Horn is a SPAC focused on sports and entertainment, so it makes sense to ask whether the decision to merge with a company outside the sector is an indication of a lack of sustainable investment opportunities in sports. Remember, 2021 was a particularly active year for M&A, and at least a dozen SPACs in search of sports and entertainment withdrew their IPO plans in the first four months of 2022.
The president of the Super Group Holding Company, Eric Grubman, while unable to talk about the details of the BHSE and Coeptis merger, believes the number of companies wanting to close or go public today is the same as it was at the height of the SPAC craze. “It was [just easier] to conclude a SPAC deal for a year or [18 months] before, because the market reacted enthusiastically to every announcement. It’s really hard to reach an agreement now. ” Many companies choose to wait for stock markets and PIPE to “reopen” before heading to direct listing. Viewed from a perspective, Q1 was the weakest quarter for IPO volume in a decade.
JWS ‘Take: While the number of companies looking to go public may be the same, the shift in the market from growth to value means that there should be far fewer of them – especially those without scale. The problem is that these small companies become stocks with micro capital, there is little liquidity for them. And without stock liquidity, especially in a weak stock market, it simply won’t trade well.
Companies of scale that show significant cash flow can still benefit from SPAC vehicles for speed and safety (think: they will have stock research coverage, institutional investors support them). But these companies have options (I mean: fanatics) and can opt for direct listing through a traditional IPO.
Large and small SPACs are currently having trouble closing deals. JP Morgan reports that SPACs are currently looking for a business combination to raise $ 160 billion in capital. The vehicle fell deep into disfavor with investors; JPM also reports a buyout rate of 86% in 28 de-SPAC transactions in Q1 ’22, compared to 61% in 49 transactions in Q4 ’21. Meanwhile, the regulatory environment is so exhausting that they are embraced by companies with sustainable alternatives to going public. Sponsors who recognize obstacles are increasingly withdrawing their IPOs instead of putting their capital at risk. Remember, there is usually a two-year deadline for SPACs to close a deal.
Bull Horn was fast approaching its May 3 deadline for the initial business combination when it announced a deal with Coeptis. SPAC was in the process of applying for an extension, but if the window was closed without a connection, BHSE sponsors would lose 100% of their investment (think: insurance fees worth 2% of the $ 75 million raised plus ~ $ 2 million in costs) search ”). So, for them, finding a company that wants to go public and hopes that the job will be done outweighs the alternative, even if the value of BHSE shares would fall sharply after the merger.
Rob Striar (CEO, Bull Horn Holdings) insists the timeline did not force Bull Horn to arm. “We have already applied for an extension,” he said. “We came to an agreement because it was a great target with the greatest potential for growth.”
Nor the lack of sustainable goals. The BHSE leadership (which also includes Michael Gandler and Baron Davis) saw a “huge amount” of deal. Striar explained that the blank check company kept its “options open to identifying a goal that would allow us to increase shareholder value. We looked at a wide range of goals in sports, entertainment and a number of other categories, including health care. ”
The decision to merge with Coeptis boiled down to biopharma giving BHSE shareholders the greatest potential for increase, both in terms of investment impact and return on investment, Striar said. “The ultimate goal of any SPAC is to increase shareholder value, and we believe the transaction we announced will do so.”
Although support for pre-FDA approval of a biopharmaceutical company is highly speculative and could certainly result in a loss of investor investment, it is hard to argue that a sports or entertainment company could return more value than a cancer drug – if successful. It should be noted that Coeptis has a portfolio of assets, so it does not necessarily depend on just one product.
In many SPAC situations, one can look at the SPAC stock and guarantee price to assess how enthusiastic the market is due to the pending merger. “After announcing the deal, for a good deal, the stock should be traded at or above $ 10,” Grubman said, “because investors will want to enter a perceived advantage. In a transaction that is less perceived, SPAC shares will continue to trade close to $ 10 because the buyout is there. ”
Grubman reiterated that he speaks in general and has no opinion on the BHSE transaction. The BHSE is trading at $ 10.10 at the time of publication, indicating possible enthusiasm for the merger.
But the signs may not be so promising on the account side. “In my opinion, an order trading above $ 1.50 indicates that investors are likely to think the deal will close and that it is a relatively good deal,” Grubman said. “A believer for trading under the dollar [indicates] a possible view that the value could be below $ 10 after closing. ”
BHSE warrants have been trading at just $ 0.08 since this announcement, which would be a bearish indicator if that theory holds true.
Grubman, however, stressed that for some SPACs, the volume of stock and warrant trading is simply too low to get a good picture of how a wide group of investors can view the transaction. He also noted that in a scenario where SPAC runs out of time and falls apart, stocks are generally worth $ 10, while the order expires worthless.
This does not necessarily mean that the deal will fail to close or that the share price will fall after closing. If there were short pressures or if Coeptis announced a positive outcome to the FDA, which could happen at any time, stocks could skyrocket (which is why there is a passionate group of investors investing in biopharmaceuticals).