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A Quick Take On Murphy Canyon Acquisition
Murphy Canyon Acquisition Corp. (NASDAQ:MURF) has raised $132.25 million from an IPO at a price of $10.00 per unit, according to the terms of its most recent S-1/A regulatory filing.
The SPAC (Special Purpose Acquisition Company) intends to pursue a merger with a company in the sectors of real estate or Proptech.
My outlook on MURF is a Hold as I believe investors in SPACs need to be extra-choosy and focus on those SPACs with great management teams and a history of positive returns to investors.
Murphy’s Sponsor Background
Murphy has 2 executives leading its sponsor, Murphy Canyon Acquisition Sponsor, LLC.
The sponsor is headed by:
– Chairman, CEO and President, Jack K. Heilbron, who has previously been President and CEO of Presidio Property Trust and NetREIT Dubose and NTR Property Management, which are all company affiliated entities.
– Chief Financial Officer, Adam Sragovicz, who has been the Chief Financial Officer of Presidio Property Trust and has extensive capital markets, finance and treasury management experience.
The SPAC is the first vehicle by this executive group.
Murphy’s Market
According to a 2018 market research report in Forbes, the global market for Proptech companies in 2017 was estimated at $12 billion.
In 2018, another $4 billion was invested in real estate technology companies.
The main drivers for this expected growth are an increase in desire by property owners to make their properties more desirable to tenants, increasing rent rates and future values accordingly.
Also, in 2021, the real estate services firm estimated there were more than 6,000 Proptech or other real estate technology-related businesses worldwide.
Murphy’s SPAC IPO Terms
San Diego, California-based Murphy sold 13.225 million units of Class A common stock at a price of $10.00 per unit for gross proceeds of approximately $132.25 million, not including the sale of customary underwriter options.
The IPO also provided for one warrant per share, exercisable at $11.50 per share on the later of 30 days after the completion of its initial business combination, and 12 months from the closing of the offering.
Notably, if management sells additional Class A shares to effect a transaction and the sale price of those shares is less than $9.20 per Class A share, ‘then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the greater of the Market Value and the Newly Issued Price.’ from the closing of an initial business combination and expiring five years after completion of the initial business combination or earlier upon redemption or liquidation.
The SPAC has 18 months to complete a merger (initial business combination). If it fails to do so, shareholders will be able to redeem their shares/units for the remaining proceeds from the IPO held in trust.
Stock trading symbols include:
Founder shares are 20% of the total shares and consist of Class B shares.
The SPAC sponsor also purchased 685,000 units at $10.00 per unit in a private placement.
Conditions to the SPAC completing an initial business combination include a requirement to purchase one or more businesses equal to 80% of the net assets of the SPAC and a majority of voting interests voting for the proposed combination.
The SPAC may issue additional stock/units to effect a contemplated merger. If it does, then the Class B shares would be increased to retain the sponsor’s 20% equity ownership position.
Commentary About Murphy
The SPAC is another recent SPAC targeting the real estate Proptech market for a merger combination.
Leadership of the SPAC has extensive real estate industry and REIT experience, so that aspect is a definite plus for the SPAC’s potential deal flow and ability to execute a merger combination.
However, the team does not have prior SPAC experience, so has not demonstrated a track record of attractive returns via a SPAC vehicle.
Investing in a SPAC before a proposed business combination is announced is essentially investing in the senior executives of the SPAC, their ability to create value and their previous SPAC track record of returns to shareholders.
So, in a sense, investing in a SPAC can be likened to investing in a venture capital firm as a limited partner.
The cost of that investment is roughly the same, 20% of the upside to the SPAC sponsor, but the time frame for realizing a significant gain can be far faster, a 1- to 3-year time period for a SPAC versus 10 or more years for a typical venture capital fund.
Also, unlike a venture capital fund, a SPAC is liquid, providing public investors with an added liquidity benefit should they need to sell.
In the case of this particular management group, there is potential upside from prior operating experience but the lack of SPAC vehicle track record gives me pause.
So, my outlook on MURF is a Hold as I believe investors in SPACs need to be ultra-choosy and focus on those SPACs with great management teams and a history of positive returns to investors.
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