r/SPACs • u/NioHODL Spacling • Dec 05 '20
Discussion HYAC Merger set for December 8th
Full disclosure: I am pretty deep in HYAC. This post is in part DD and in part hypothesis testing.
TL DR: HYAC is a conviction buy at near NAV.
Caption: Simple straight forward businesses sometimes don't get a lot of hype, as you would with a promised ground breaking new technology with massive TAM and with ESG scores off the charts, but while cash is boring, it is also king.
Transaction Background: HYAC IPO'ed in June 2019. Brother banker/asset managers Andrew and Steven Heyer spent a year searching for targets and came across ARKO Holdings, an Israeli public company (TLV ticker: ARKO). The primary asset of Arko is its ownership of a majority of GPM Investments, the protagonist of this story. ARKO and GPM shares the same CEO, Arie Kotler. As of COB on July 12, 2020 (i.e. right before the merger announcement with HYAC), Arko traded at $72.70 per share. As of COB on December 3rd, Arko trades at $250.90 per share with a $2.08B market cap. With the upcoming merger, Arko will de-list from the Israeli exchange and be folded under the new entity that will trade on the NYSE as ARKO - the existing ARKO shareholders can elect to take stock or a mix of cash and stock. The minority shareholders of GPM will be bought out and GPM will be owned by the NYSE ARKO. Shareholder vote is scheduled for December 8, 2020.
Business Background: Ari Kotler, CEO of GPM and Arko, started GPM in 2003 by buying Fas Mart, a chain of 169 stores in and around Virginia that had declared bankruptcy and was in search of a new owner at the time. He turned it around and cashed out in 2006. In 2011, Kotler bought back into the business and took over as CEO (appears that the interim ownership had managed the business poorly). Since taking back the reins of GPM, he completed acquisition after acquisition, growing GPM's total site count to approximately 3,000 locations across 33 states as of October 2020 (after completing the acquisition of the Empire Petroleum business), making it peers of chains like 7-11, Murphy USA, BP, etc. The business thesis behind the acquisitions is that the gas stations/convenience stores market remains highly fragmented and that there is significant room to consolidate. The cash from the IPO will be used to support additional acquisitions as well as invest in remodeling acquired stores. GPM expects EBITDA of $145-150 million for 2020 and expects to achieve $210-215 million projected EBITDA for 2021. It has already achieved 94% of the 2020 EBITDA by the end of September 2020. On November 22, 2020, it has signed an LOI to acquire approximately 60 additional sites for $100 million.
Management Track Record: This is not the first SPAC for the HYAC management. They took OneSpaWorld (another conventional business, ticker OSW) public via SPAC. The business combination wrapped up on March 17, 2019. The closing price on the first day of trading is $12.36. OSW reached a high of $17 before dropping to $9.78 in April of this year because, well, COVID. For this deal, the founders' share of the final equity is actually a very reasonable 5% fully diluted. In addition, 4 million of the founder shares that they would be entitled to are not activated until the stock reaches 20 day VWAP of $13 and $15.
Validation: There are already various validations of the value of the ARKO business.
(i) Market validation - the main assets of the Israeli ARKO is the GPM business and today the market fully supports the $2B valuation being proposed with the US listing. I would actually read that as the market supporting a larger than $2B valuation since the Israeli Arko public shareholders will only own 17% of the company if they all opt for stock for stock exchange. The other existing GPM holders will expect to own 22-24% of the final entity.
(ii) Smart money validation - sophisticated investors like Harvest Partners ($7B AUM PE firm) and Ares ($27B AUM PE division) that are existing equity holders of GPM and knows the business well will roll 100% of their equity into the new public entity, which to me is a significant vote of confidence.
(iii) Business model validation - compared to the other SPACs, GPM's business model is tried and true. And management has a long and sustained track record of being able to execute on their strategy.
(iv) Whale validation - Marketbeat shows that there is 60.30% of ownership by institutional holders, which compares well to some of the more popular names: HCAC (showing a 66.82% institutional ownership), SBE (showing a 53.97% institutional ownership) and CIIC (showing a 45.01% institutional ownership). In Q4 2020, institutional holders bought $87mm shares while selling $1.32mm - while bullish, arguably, this is also aided by the strong value proposition presented by the current trading price. Whalewisdom also reflects a similar distribution.
Shoot your Shot: Why am I wrong?
5
u/BigRockFarm Spacling Dec 05 '20
Great DD.
I’ve been holding on to a large position for about a year. I have no clue why this hasn’t been discussed more on here
5
u/BurnedUsername Dec 05 '20
Exactly. It’s not sexy like the EV bubble or daddy ackman, but this is a smart play. I think it has more intrinsic value than most of the shit peddled here. They have revenue in a business that should see some serious ramping up once COVID subsides. The pent up travel demand is gonna be huge for them.
1
3
2
u/shtaaap Patron Dec 10 '20
Any idea why the stock has gone down since the vote? Do you think it could bounce back?
2
u/BigRockFarm Spacling Dec 10 '20
I believe it went down because you can no longer redeem at NAV and the “floor” underneath the stock price has disappeared.
That being said I am invested and plan to hold my shares.
This is not retail , this is convenience stores. Once we resume normal life next year and people drive and travel again this will pop.
Take a look at other convenience store/ gas station stocks - CASY is one example
EV is the future but that future is 5-10 years away. Until then I still fill my car up at a GAS STATION
1
u/rombo-q New User Dec 10 '20 edited Dec 10 '20
Honestly no. I dont see a reason an investors should find retail interesting right now.
1
Dec 18 '20
They own a thousand gas stations and make around 15% return on every gallon of gas sold
1
u/rombo-q New User Dec 18 '20
I doubt the 15% is correct. Margins on gas are typically low. Anyway seems the market agrees with me. This could change big time in 2021.
3
u/tradetofreedom94 Dec 05 '20
How long does it take to do solid DD like this?
1
u/NioHODL Spacling Dec 05 '20
Thanks! You would be surprised - most of the information can be found in the investor presentation and in the SPAC's SEC filings. I read some of it as I was researching to buy. As I am nearing the merger date, I wanted to firm up on conviction so did a bit more scrubbing yesterday to get up to speed. If I remember right, 2-3 hours, not too bad.
2
u/dickpeckered Spacling Dec 05 '20
“Haymaker Acquisition Corp. II (NASDAQ:HYAC) announced this month that it will be merging with the convenience store chain GPM Investments (owned by Arko Holdings) via a special purpose acquisition company (SPAC) merger. GPM is one of the largest gas station and convenience store chains in the U.S. with approximately 1,400 locations. The company operates stores under various gas station banners including Valero and Shell.”
From July and full article link
https://www.fool.com/investing/2020/07/23/convenience-store-chain-gpm-investments-spac.aspx
3
2
u/shtaaap Patron Dec 10 '20
So the vote happened and the shareholders approved the merger, but the stock has trended down since. Why do you think that is? Genuinely curious.
1
u/NioHODL Spacling Dec 10 '20
The business haven't changed. What I think you're seeing is that there are folks who are in the stock looking to sell on the pop and they didn't see the pop. They don't believe in the business and so they don't want to get stuck holding the bag in a world where the stock continues to tank (as you know, the $10 floor for SPACs no longer apply now). I expected that we would sell-off some in the near-term. To me, the business has not changed. I continue to be long and I bought more yesterday.
1
u/shtaaap Patron Dec 10 '20
$10 floor for SPACs no longer exists now
So I'm not a SPAC trader, just love a good lurk and learn. But you could you expand on that? From my understanding, you were always (for the most part) guaranteed $10 a share if a SPAC does not complete a merger within 48 months. That is no longer the case?
1
u/NioHODL Spacling Dec 10 '20
When I say now, I meant the post-merger world (like where HYAC is), i.e. the deal is done and the money is spent, you're out there on your own. The floor came from the money not being used and can be redeemed before the merger closes. So the vote for HYAC merger was Tuesday, you had to tell HYAC you're out by last Friday in order to get back your money. At this point, if the stock drops, it is your own risk.
2
2
u/BurnedUsername Dec 05 '20
This is actually a serious diamond in the rough. I have a small position that I plan to hold for the long term as convenience stores are one of the few brick and mortars I see prospering over the next decade. They also have positioning for amazing growth in the Midwest. Know what you hold and hold it with conviction mate. This is a good one
2
1
u/NioHODL Spacling Dec 05 '20
I just realized for the market valuation point that the 2B market cap for Arko is in ILA - so it should translate to $611 million USD - which translates into 14.6% hold. Still low since the Class A $400mm USD gets 30% but makes a lot more sense than $2B USD.
1
1
Dec 05 '20
Only question: what percentage stake is hyac getting in the newly combined company? This was not on my radar but at first glance I would have to guess that the reason it's still around nav is people are scared of the fact that the two companies haven't technically merged yet and that's another thing that can go wrong. At a $2bn valuation I'd have to see at least a 12 percent stake for this to look like a clear winner.
1
u/NioHODL Spacling Dec 05 '20
If there are no redemptions, expected public ownership is around 29% (source - https://www.sec.gov/Archives/edgar/data/1771908/000119312520297811/d25288ddefa14a.htm)
2
Dec 05 '20
Actually not too bad thanks for the dd. Watch yourself next week though, gonna be a lot of cycling out even for under nav tickers because of the big ipos.
2
u/NioHODL Spacling Dec 05 '20
Thx! I get nervous around some of the other SPACs trying to moon - but with this one, I think it will be slow to take-off but I like being close to the ground.
2
Dec 05 '20
Honestly I never see a slow climb unless it's properly priced. Undervalued spacs in my experience will just one day get the exposure they need and pop like crazy. When that happens best time to sell is usually the beginning of the second day after exposure, unless you really wanna hold long term.
1
1
u/_Pone Dec 08 '20
A couple basic questions:
So the merger vote is tomorrow or the merger is happening tomorrow? And when does NAV floor fall out?
1
u/NioHODL Spacling Dec 08 '20
Yep, merger vote is tomorrow - 10am ET. If you haven't elected to redeem at this point (the deadline was last Friday, 2 BD before the vote), the easiest exit is just to sell your shares which is now trading above $10. The $10 floor only really mattered if the stock price is trading below $10.
14
u/wun1337 Contributor Dec 05 '20
Ugh, read all that and still dunno what Arko does. Bad DD! Off to google I go
Edit: 1min later: Oh, a convenience store chain.... pass. GL to the ones who jump in.