In light of recent market volatility, Wall Street has decided to throw the baby out with the bathwater.
They are dumping shares of business combinations put together via the special purpose acquisition companies (SPACs) I talked about here a few weeks back without consideration to the value of the companies in question.
According to the “Street:” If it’s a SPAC, it’s bad.
I don’t buy that, and neither does my colleague and seasoned SPAC trader Tim Melvin.
In my opinion, Wall Street is leaving money on the table, and I don’t want you to the make the same mistake. Some of these companies are gems – real companies with tangible assets and cash flows…
So Tim and I worked together to sift through the de-SPAC trash pile Wall Street created to find the gems they tossed without considering the profits they could have seen – but their loss is our gain.
Here’s an excellent example of the type of opportunities we’re seeing: Perella Weinberg Partners (PWP).
This is an investment bank founded in 2006 by two legendary investment bankers – not dreamers… not celebrities… investment bankers with a solid track record.
Joseph Perella was with First Boston for years before teaming up with Bruce Wasserstein to form Wasserstein Perella & Co. in 1988. The firm became a leader in merger and acquisition advising and was a key player in the merger boom of the late 1980s and early 1990s. He later moved on to partner with former CEO of Goldman Sachs International – Peter Weinberg – to start Perella Weinberg Partners in ’95.
Mr. Weinberg has been an investment banker for over 35 years and has worked with some of the largest companies in the world including Alphabet (GOOG), Northrop Grumman (NOC), and BlackRock (BLK). He has also worked with several United States government agencies to handle capital markets transactions. He currently serves as the CEO of Perella Weinberg Partners.
The firm provides strategic, financial, and tactical advice in executing complex mergers, acquisitions, company sales, and corporate divestitures – relating to takeover preparedness and defense and including carve-outs, joint ventures, and spin-offs.
Clients include private equity leader KKR & Co. (KKR) as well as corporate clients like Warner Bros. Discovery (WBD), The Kraft Heinz (KHC), Brookfield Asset Management (BAM), and Baxter International (BAX).
The company reported its second-highest three-month revenues in the first quarter since Perella Weinberg Partners opened its doors. In addition, they generate massive free cash flows and use that cash to buy back stock. In the first quarter alone, they repurchased 730,000 shares.
They also are paying a dividend, and the stock yields about 4.4%.
The stock is trading at less than six times free cash flow.
The company completed a business combination in June of 2021 with FinTech Acquisition Corp. IV. The stock actually moved higher until the current de-SPAC selling frenzy began in the second half of 2021.
Today, Perella Weinberg Partners sells for less than half of the 2021 highs.
The current bear market will create opportunities for the firm to engage in M&A advising, reorganizations, and other corporate transactions. Corporate restructurings should also be a very active part of the business thanks to the economic disruption the market volatility is going to create.
Based on earnings power, this stock should be trading at least twice the current price a year from now.
The warrants still trade as well. The Perella Weinberg warrants (PWPPW) are thinly traded and have a wide bid-ask spread – so if you decide to take advantage of the leverage they provide, be sure to use a limit order. The warrants expire in June of 2026 and have a strike price of $11.50.
The warrants are trading a little above my fair value calculation of $0.85, so I would also wait for a pullback to buy warrants.
I am adding Perella Weinberg Partners to my busted SPAC list. This is a real company with a real business. The company is generating cash flows and is very generous about using the cash to reward shareholders. They are actively buying back stock and paying a generous dividend.
— Shah Gilani
Source: Money Morning