Two Former SPACs Heat Up the M&A Market


Two Former SPACs Heat Up the M&A Market

Jul 25, 2022 INTEL by Kristi Marvin


Ginkgo Bioworks Inc. (NYSE: DNA), the cell programming company which previously combined with Soaring Eagle Acquisition Corp. in September of 2021, announced this morning that it would be buying the biotech company Zymergen (Nasdaq: ZY), in an all-stock transaction.

Ginkgo will be acquiring Zymergen at a fixed exchange ratio of 0.9179 Ginkgo shares for each Zymergen share, which puts the value of ZY at approximately $2.85 per share.

What’s probably most interesting to SPAC investors is that while Ginkgo is a former SPAC, Zymergen came public via a $500 million traditional IPO in April of 2021, at a price of $31.00. Zymergen’s announced acquisition price today of $2.85/share represents a value -91% lower than ZY’s IPO offer price.

But, Zymergen had a pretty storied and grim start to public company status from the get-go. Just three months after going public, ZY announced severe cutbacks in its commercial pipeline virtually wiping out any chance of generating revenue in 2021. At that point, the share price tumbled 75% and the founder and CEO stepped down. Keep in mind that this was a traditional IPO that was sold based on its commercial pipeline.

So to have a SPAC buying a traditional IPO on the cheap after said traditional IPO failed to execute on what it sold during its roadshow, completely turns the current narrative about SPACs on its head.

In other SPAC news, Infrastructure and Energy Alternatives Inc. (Nasdaq: IEA), another former SPAC that combined with M III Acquisition Corp. in March of 2018, announced that it will be acquired by MasTec (NYSE: MTZ), a leading infrastructure construction company, for approximately $14.00 per share, a 40% premium to M III’s IPO price of $10.00.

IEA is a services provider in renewable energy and infrastructure solutions with extensive expertise and capabilities spanning engineering, procurement, construction and other related services. M III, originally raised $150 million at its July 2016 IPO and announced its combination with IEA in 2017 with an implied enterprise value at that time of $293 million.

Both deals today paint a different picture than what’s usually portrayed in the press. Namely, that not every traditional IPO is a success; not every SPAC is a failure. And, even without using projections in a traditional IPO, there is no guarantee the company is accurately portraying its commercial viability.

And lastly, perhaps the recent volatility that has inhibited IPO activity ramps up the M&A market as the macro-economic backdrop moderates. After all, lots of good bargains out there…