Net Asset Value (NAV) is the net price of a share or an entity. NAV can be calculated by subtracting the liabilities from total assets divided by the total no. of shares. The term NAV is commonly seen used in Exchange-traded funds (ETF) or mutual funds but is also commonly being used in the context of Special Purpose Acquisition Companies (SPACs). SPAC is a shell company whose main purpose is to collect capital from the public through an Initial Public Offering (IPO) and acquire a private company within a specified period of time. Hence the investors will buy common shares generally at a price of $10 per unit. So a NAV is basically a price per share/unit of the fund in a specified day, which could be greater or less than $10. In this article, we will talk about how to calculate NAV and why it is important.
Understanding stock price versus NAV
People get quite confused between stock price versus the NAV. They both look similar yet so different. As we are only talking about SPACs, the stock price would be the price per share on a trading day. The stock price changes every day with change in supply and demand. The point is that if there are more people buying the stock (demand) than people who are selling it (supply), the stock price will rise. Conversely, if the supply is more and the demand is less, the price will fall. Hence, the stock price totally depends on the supply and demand. There are multiple factors that cause the change in stock price every day. Some of them are positive and negative news about the company, ticker change, politics, merger news, etc.
So the price of the stock at a particular trading hour totally depends on the investors. If the investors think that the company is worth investing in, it means the demand will increase and so will the price. But that is not the case when we are talking about SPAC NAV. By the definition of NAV, you will be thinking that it is also the price per share then how it is calculated. So the SPAC NAV is definitely the price per share but it does not change every day. That is, the SPAC NAV is based on the 10Q/10k filing of that SPAC in the Securities and Exchange Commission (SEC).
The 10Q filings are the quarter filing and 10K is annual. These filings provide the actual data about the company that investors need to know. These reports will have data about assets, liabilities, stockholders’ equity, commitments, net income, net loss, warrants, outstanding, etc.
So the factors that affect the SPAC NAV are the actual revenue earned, total expenses, offerings, and dilution. Hence to calculate the NAV, all you need to know is about the cash held in the trust account and the total outstanding. So the cash and the marketable security held in the trust account is the actual cash that is leftover in the bank. And total outstandings are the number of class A common shares. Class B shares should not be considered until they are converted to Class A shares.
So, for NAV calculation we will need two parameters i.e. Cash held in a trust account and total outstanding. So for VIH,
Cash held in trust account = $207,393,442
Total outstanding = 20,737,202
Therefore,
Net Asset Value (NAV) = Cash held in trust account / Total outstanding
= 207,393,442 / 20,737,202
= $10.001
The result is quite similar to the initial NAV i.e. price per share when IPO was opened. But if you check its stock price it will be greater or smaller than this price. This Net Asset Value (NAV) is based on the 10Q report which is a quarterly report. There will be a 10K filing also which will be used after the completion of one year. Even after a 2 years time period, if the merger could not happen, the amount you will get will be given by the NAV of the 2nd 10k filing plus some interest.
Also sometimes dilution can cause NAV to change drastically. Dilution is basically the increase in the no. of common shares due to the addition of shares from SPAC warrants, sponsor shares, and shares from the PIPE deal. Due to an increase in the number of shares and no visible change in total cash the NAV value could be marginally less than $10.
Final Words
Net Asset Value (NAV) gives the actual price per stock. This helps investors to know the actual value of the company’s stock. Most investors can make their investment decision based on the NAV of that company. To be always updated with the SPAC NAV price of different SPAC stocks, SPACrun would be the best option. SPACrun also provides alerts based on de-spac news, ticker news, merger news, etc. Watch the top 10 volume leaders, gainers, and losers every day along with Reddit sentiments. Visit SPACrun now and get a free trial.
