Hennessy Capital LLC (NASDAQ: HCAC) is Wall Street’s rising SPAC star as they intend to merge with EV company Canoo. The merger will see yet another EV stock enter the market with uncontrollable momentum. Many investors seem to be getting in on HCAC in the lead up until the merger, all with the expectation of volcanic activity. However, the bears argue that the hype is ridiculous and that banking on HCAC to be another SHLL could be a costly mistake. Nonetheless, today’s article will break down the HCAC merger for our readers and provide our take on a potential investment.
Table of contents 1. Why all the hype behind the merger? 2. Who is following HCAC: smart or dumb money? 3. Does YIG see value in a HCAC investment?
Breakdown of the HCAC merger
HCAC is a Special Purpose Acquisition Company (SPAC). A SPAC is a company that goes public with the sole intention of merging with another company. If the word SPAC or PIPE investors sounds foreign, then you must read YIG’s free and straightforward explanation otherwise, you will be at an information disadvantage.
Canoo is a high-growth, innovative EV company. However, innovation is often the title of most EV companies, so what makes Canoo different? First, their ability to design the world’s first flattest “modular skateboard” provides them with a product edge in the EV space. The skateboard architecture allows Canoo to provide enough interior space without creating a gigantic vehicle. Second, Canoo is targeting the millennial market with its subscription-based EV model and unorthodox interior design. Allowing people to make payments overtime on a Canoo to have access now. Ultimately, providing some relief that Canoo will not lose all its potential market share to other EV makers such as Tesla, Nio, Kandi Technologies, Fisker, and Hyliion. To read the full merger PR, click here, but YIG’s explanation should be enough to get your feet wet on the merger.
Moreover, the unveiling of Canoo’s electric vehicle below should put the investor optimism into perspective. Overall, it should come as no surprise that HCAC, a SPAC looking for a high-growth company, is deciding to marry Canoo on the 3rd of September (According to Barron’s). The merged companies will trade under the ticker CNOO.
Smart money is controlling the HCAC bull – but why?
The smart money has and continues to pour into HCAC, which is no surprise for a bullish SPAC merger. In Hennessy’s case, the percentage ownership of institutions, the recent buying, and the big name players is rather noteworthy. First, institutions own 62% of HCAC. When any group owns more than 50% of a company, investors should look to find out the group’s agenda. It seems the institutions are loading their pockets with HCAC shares with the expectation that the merger will provide an excellent return on investment (opinion, not advice). Especially, as Morgan Stanley, Deutsche Bank, and Bank of America all own a portion of HCAC.
Moreover, the lack of selling and spike in institutional buying over the past few weeks is worth looking into. For example, the Litman Gregory Master fund bought $1.9 million shares at the tail end of August. Overall, the smart money is suggesting a strong bullish undertone leading up until the merger. However, YIG would like to point out that the smart money tends to be the drivers in the lead up to a market debut. Thus, investors should not base their entire investment of one indicator, which is significant institutional ownership.
Does YIG see value in an investment?
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research
Short answer: An investment in the short-term holds potential but is not without significant risk(opinion not advice)
Riding the HCAC merger momentum holds incredible weight. Especially considering the track record of SPAC success in 2020, the backing from the smart money, and innovative design. Not to mention Dan Hennessy, the Founder of HCAC, has taken 4 SPAC’s public before. Ultimately, creating a picture which seems to good too be true. The optimism should sustain itself until the merger. (opinion not advice)
However, any day after the merger, investors should tread carefully. Because the thought of selling shares enters the smart money’s mind. Also, the fact that Canoo is not rolling out EV cars until 2022 could see investors leave. Think of a HCAC investment like an unorthodox game of Russian roulette. Before the merger, you can play, but the gun has no bullets. However, once the merger happens, a bullet is loaded in one chamber. Because, a spelling spree could emerge on any day as volatility spikes, as we saw with Nikola. Thus investors, should have an exit strategy.
The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Here is our free, uncomplicated, and extensive ASX portfolio
Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?
Written by Patrick McLoughlin, Senior Manager of YIG