ACEV - Potential LF Gamma Squeeze

notmisa · May 13, 2022, 4:01pm

[size=4]The Company[/size]

Ace Convergence Acquisition Corp. (ACEV) is a pre-merger SPAC that is merging with Tempo Automation, Inc. (Software-accelerated electronics manufacturer).

The deadline for the initial business combination is July 13, 2022.

From my understanding, it’s NAV is $10.00 - which it’s currently trading under at time of writing this.

Latest 8-K Form

[size=4]The Components[/size]

As I was learning how to reverse engineer ESSC, I formulated a checklist of what to look for to make a SPAC play viable. The following are the components that I’ve researched and found that could make this the next ESSC.

Is the current float already relatively small? Yes, current float is 8.2M (refer to 8K form above)
Is the ticker Optionable? Yes, on Webull - I can’t confirm for other platforms.
Is there a Backstop Agreement? Yes.

[size=4]The Missing Piece of The Puzzle: Redemption[/size]

The play is contingent on the amount of shares that are actually redeemed.

Free Float = 8.2M
Shares Redeemed = ???
Backstop Subscription Agreement = 3M
New Float = ???

As a simple formula:

(FF - SR) - BSA = NF
(8.2 - SR) - 3 = NF

As we can see, it would take about 4.2M (51% of FF) shares redeemed to get a New Float of 1M or less. This would translate to an option chain that would only have to have 10,000 ITM OI to make it 100% of the New Float.

In terms of where the SPAC is right now, they’ve yet to announce the date for the finalization of the Business Combination. Also, important to note: there was significant price action back in January & February and I’m not sure what caused it.

Anyway, if the SPAC continues on course and the open interest starts to accumulate, we could be witnessing the start of something really incredible.

notmisa · June 3, 2022, 9:12pm

Prelimenary Schedule 14A was just filed and we have a little bit more information.

They want the deadline to be extended (the “Extended Date”) to be moved to October 13, however…
In connection with the Extension, shareholders may elect to redeem their shares
The date for the actual Extraordinary General Meeting is left blank on this form and I assume it’ll come sometime this month since this must take place before the deadline. I’m assuming at that time is when the redemption numbers will also be announced.
Float is still 8.2M
Looks like NAV is actually $10.18 if I’m reading this correctly.

Also, the underlying has been slowing creeping up to NAV these past few weeks.

RefirgerateMyESSCash · June 6, 2022, 2:06pm

Interesting.

Only thing I’d add is (perhaps the obvious point) that the shares subject to the backstop wouldn’t be capable of being redeemed. So you’d really be looking for there to be 80+% of the remaining non-backstop shares to be redeemed to get down to a sub-1 million float that could be similar to ESSC 1.0.

On the positive side, there doesn’t seem to be a ton of volume on the options, which has actually been a warning sign of mediocre redemption numbers (such as on BREZ). The theory is that when these plays start getting front-run by retail, arbs or MMs start buying up the float to sell relatively cheap OTM covered calls with the knowledge that they won’t redeem enough to make it a microfloat. Just as retail is learning to play (or not play) these types of situations, so are the more sophisticated parties.

notmisa · July 12, 2022, 8:38pm

JUST IN: 4.2M shares (51% of FF) have been redeemed. I think these mfs have been reading my DD because its playing out how I had theorized.

That should leave us now with a float of (8.2 - 4.2 ) - 3 = 945,298 float.

The November OI on the 12.5 strike accounts for 57% of the new float assuming it goes/stays ITM.

derfam · July 12, 2022, 8:48pm

Damn great spot, the massive backstop shareholders makes it risky but currently I think this is the lowest float SPAC with options we’ve seen so far. Unfortunately looks like all the OI is on the november expiry which are probably STO and the rest of the months don’t really have any OI. Could be worth a punt if you can get in near NAV though.

Castle · July 12, 2022, 10:26pm

Found this on reddit.

notmisa · July 12, 2022, 10:34pm

Would like to summon @Kevin and @DakkJaniels for their thots on this.

Kevin · July 13, 2022, 2:54am

If the new float is correct, then basically I have the same view as @derfam on this. The OI is not set up on any options expiration for a gamma squeeze type of move, but it has the potential, and therefore perhaps it get pumped on some corner of r/SPACs.

I would treat this as a lotto, and probably buy the August or November 10c or 12.5c, in the hope that the ticker gets pumped. Not sure if I will though.

I took a look at the history of the November 12.5c. It looks like the bulk of that OI was built from late April as seen below, and then in mid May there were bulks of 100 and 200 to get to 5400.

I found some of the larger flows as well for these transactions. As the UW tags are not 100% reliable, it’s hard to tell if they’re BTO or STO for sure.

Kevin · July 13, 2022, 3:03am

I see one Reddit post on ACEV here. Looks like it isn’t gaining any traction or comment activity yet. They also don’t have any info on the backstop investors.

notmisa · July 13, 2022, 3:22am

Thank you for your valuable input! Yeah it’s a shame retail pumps worthless crap, which hinders plays that have actual potential. Will just keep an eye out for an increase in OI overtime.

derfam · July 13, 2022, 8:41am

EVEX had similar situation, 1.9m float with no OI and pumped from $5- $12 once pumpers got a hold of it. Gonna be watching the options volume today.

lu2014 · July 13, 2022, 10:10pm

In looking at the filings, it looks like the backstop agreement was actually cancelled, right?:

"In connection with the execution of the Merger Agreement, ACE entered into a Backstop Subscription Agreement with ACE SO3 (the “Backstop Investor”), pursuant to which the Backstop Investor committed to purchase up to an additional 3,000,000 shares of New Tempo common stock, for an aggregate amount of up to $30.0 million, to backstop the Minimum Available Acquiror Cash Amount. On March 16, 2022, ACE and the Backstop Investor terminated the Backstop Subscription Agreement. "

So if it is cancelled, that would leave the float at a bit over 3M shares.

Kevin · July 14, 2022, 12:34am

Flows here are still super weak, and do not appear to be anyone loading up for a pump.

Total Call Premiums = $1390

They are quite cheap though.

notmisa · July 14, 2022, 11:57am

Thank you for pointing this out! It was a big oversight on my part and I believe that the float is too big to make this viable at this point.

I did, however, ask them directly about it and it seems that they’ve found a way to secure the value of the Backstop Investor with different collateral. I’m not sure what the last part of the email means. If someone with more knowledge on SPACs could translate that’d be great