Hundreds of “blank check” firms launched IPOs without having an operating business.
Four Jacksonville companies were in various stages of initial public offerings during the first three months of this year, suggesting the IPO market is heating up.
However, the real hot market trend is the special purpose acquisition company, or SPAC.
SPACs are companies that launch IPOs without having an operating business, with the intention of finding an acquisition target after the IPO.
The market reached Jacksonville two weeks ago when space technology company Redwire LLC agreed to go public by merging into a SPAC formed last year.
But Jacksonville already had a connection to the SPAC market through Bill Foley, chairman of Fidelity National Financial Inc.
Foley is one of the biggest players in the SPAC market and The Wall Street Journal this week spotlighted his history of making money by investing in undervalued companies.
The SPAC market is so hot that the Journal a month ago began sending out a twice-weekly emailed newsletter to keep up with that specific market.
That newsletter last week reported there were 433 SPACs looking for private firms to take public as the first quarter ended.
SPACs are considered a glitzy investment by some but in its story this week, the Journal called Foley a “staid insurance executive.”
Foley told the newspaper “I’m a big fan of boring companies.”
His latest deal, completed last week, was a $9 billion acquisition of payments processing company Paysafe Ltd. through a SPAC formed last year.
Cannae Holdings Inc., an investment company spun off from Jacksonville-based Fidelity, has joined with Foley’s SPACs in several investment deals.
During Cannae’s quarterly conference call with analysts in February, Foley said he expects the pace of SPAC deals to continue.
“Our efforts are focused on high quality companies with defensible profitable business models,” he said.
“We are confident in our approach to sourcing transactions, demonstrating our discipline, value-based approach which we believe ultimately delivers superior long-term returns to our shareholders over the market cycle.”
Traditional IPO market mixed
The traditional method of going public through an IPO provided mixed results in the first quarter, as far as Jacksonville companies go.
Dream Finders Homes Inc. completed its IPO in January and the homebuilder’s stock more than doubled in price in the early days of trading.
But at the same time, Southeastern Grocers Inc. pulled its IPO from the market, apparently because it couldn’t get the price it wanted on Wall Street.
Southeastern Grocers, parent of Winn-Dixie and two other grocery chains, has not made any new IPO filings with the Securities and Exchange Commission since January and did not update its financials with fourth-quarter results, leaving the future of its IPO uncertain.
“Southeastern Grocers has thoroughly explored the current market conditions and determined that market dynamics were not ideal for our IPO at this time. However, we will continue to evaluate the timing for a potential offering in the future,” spokesman Joe Caldwell said in an emailed statement.
Two other Jacksonville area companies filed for IPOs in March: specialty insurance company Fortegra Group LLC and surgical device company Treace Medical Concepts Inc.
No date has been set for those IPOs to reach the market.
Acquired Sales sees earnings surge
Acquired Sales Corp. reported last week that fourth-quarter sales rose 46% from the third quarter to $2.2 million and earnings quintupled to $549,531, or 2 cents a share.
The company which focuses on hemp-derived, cannabinoid-infused products, had no operating business until acquiring a company called Lifted Made in early 2020, so its year-earlier results are irrelevant.
Acquired Sales in January moved its headquarters office from Lake Forest, Illinois, to Jacksonville, and said a month ago said it is changing its name to LFTD Inc. to reflect its operating business.
Its headquarters is a home office space provided by CEO Gerard Jacobs, the company said in its annual report filed last week with the SEC.
The report said Acquired Sales has 46 full- and part-time employees working mostly in Lifted Made facilities in Wisconsin and Illinois.
Jacobs said in a news release last week that the company is focusing on acquiring businesses and letting entrepreneurs continue to run them.
“This decentralized approach is critical in a fast-paced, evolving industry like hemp-derived products, where these entrepreneurs must maintain a close pulse on the direction of their business, must be nimble and make critical decisions quickly, and must be excited to continue to lead and rapidly grow their businesses,” he said.
ParkerVision litigation delayed
ParkerVision Inc. reported last week a 2020 loss of $19.6 million, or 42 cents a share, as the Jacksonville-based developer of wireless technology waits for patent infringement claims to be heard in court.
ParkerVision has no operating business and is focusing on several lawsuits against major electronics manufacturers alleging they illegally are using the company’s patented technology.
The company said a jury trial in its lawsuit against Qualcomm Inc., scheduled to begin in July, was delayed because of the COVID-19 pandemic and other factors. ParkerVision now expects that trial to begin in November or December.
Another case against Intel Corp. is scheduled for trial in February.
Landstar System downgraded again after record high
Landstar System Inc.’s stock continues to hit record highs, but some analysts are skeptical that it will keep rising.
Stephens analyst Jack Atkins downgraded the Jacksonville-based trucking company last week from “overweight” to “equal weight.”
Atkins had nothing but positive things to say about Landstar in his report but he noted the stock had risen 26% since the beginning of the year.
“We have long admired (and still do) the Landstar business model that generates returns on invested capital of about 45% and a return on common equity of about 30%,” he said.
Landstar’s business model uses drivers who own their own trucks to haul freight.
“In many ways Landstar already has the model that several of the largest asset-based carriers in the industry are looking to replicate over the next several years to drive revenue growth without having to add additional assets,” Atkins said.
Atkins said several factors should help Landstar grow its market share.
However, with the stock trading at about 25 times expected earnings, the price is less likely to keep rising.
Atkins’ downgrade follows Goldman Sachs analyst Jordan Alliger downgrading Landstar from “neutral” to “sell” last month because of the high price.
Ameris downgraded after big run
Ameris Bancorp’s stock jumped 140% over six months, prompting D.A. Davidson analyst Kevin Fitzsimmons to lower his rating last week.
“We are lowering our rating on Ameris from Buy to Neutral mainly owing to the stock’s recent outperformance and premium valuation (and in turn, less implied upside for the shares in coming months, in our view), as well as a looming top line headwind from normalizing mortgage,” Fitzsimmons said in his research note.
He said with the hot mortgage market, Ameris’ revenue from mortgages rose from 19.8% of core revenue in the second half of 2019 to 36.9% in 2020.
“Ameris was certainly an outsized beneficiary of the boom in mortgage activity, and arguably was ‘over-earning’ relative to a more sustainable pace of EPS and core profitability,” he said.
Ameris is headquartered in Atlanta after moving its executive offices from Jacksonville in 2019.
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