Undoubtedly, one of the greatest innovations of the last several years has been the broader development of the financial technology (fintech) industry, which has enabled conveniences that prior generations could only dream about. At the same time, companies moving into this segment, such as HCM Acquisition Corp, must balance its potential with a surprising irony.
On the optimistic front, the digitalization of everything broadens access to those whom traditional infrastructures previously ignored. In 2019, the Federal Deposit Insurance Corporation (FDIC) estimated that 5.4% of U.S. households (approximately 7.1 million people) were unbanked, defined as no one in a household having a checking or savings account at a financial institution.
Further, the fear is that the COVID-19 pandemic, because of its “extraordinary economic and social disruptions,” could sadly yield greater disparities for the unbanked. As circumstances stood before the global health crisis, unbanked status disproportionately impacted marginalized communities. Therefore, fintech platforms can provide a small but meaningful solution, extending capital to those that most need it.
However, as Harvard Business School revealed, consumers “turning to fintech lenders are more likely to spend beyond their means, sink further into debt and ultimately default more often than people with similar credit profiles borrowing from traditional banks.” It’s this contrast of intentions and outcomes that simultaneously intrigue and plague HCM Acquisition’s debut.
What Is HCM Acquisition?
Structured as a special purpose acquisition company (SPAC), HCM Acquisition does not have a business of its own. Rather, it seeks to merge with “businesses which provide disruptive technology or innovations within the financial services industry.” Per HCM’s press release, management will focus on “acquiring established businesses that it believes are fundamentally sound but in need of assistance to maximize their potential value.”
Further clarity comes courtesy of HCM’s Form S-1 prospectus with the U.S. Securities and Exchange Commission (SEC), which stated the goal of identifying “a company at the intersection of innovation.” Specific areas of interest include fintech, retail banking and payment transfer, payments processing, real estate, lending and leasing, cybersecurity, cloud computing and digital assets and blockchain technology.
When Is the HCM Acquisition IPO Date?
Following a blistering year of new listings in 2021, at least some analysts must have anticipated a cooling off in the initial public offering (IPO) market, or the first time a private enterprise distributes its equity shares for public (retail) acquisition. However, the number of companies entering the fray has been quite solid.
For HCM Acquisition, the SPAC will ink its name on the IPO calendar on Jan. 21, 2022. Under the terms of the deal, it will distribute 25 million units at a per-share price of $10. Each unit consists of one share of common stock and one half of a warrant, which is exercisable at $11.50. However, only whole warrants are exercisable.
Cantor Fitzgerald & Co. represents the sole bookrunner for the offering. Shares will trade on the Nasdaq exchange under the ticker symbol HCMAU.
As with other IPOs, the timing of the listing imposes a perplexing circumstance. True, HCM’s structure as a SPAC may not appeal to investors who are seeking a specific (and disclosed) business. However, the fintech industry has attracted incredible attention during the new normal. In particular, should HCM target digital asset and blockchain-related enterprises, the mere mention of these decentralized platforms could spark considerable hype.
On the flipside, the capital market is presently undergoing a painful rotation out of risk-on assets. Conspicuously, the tech-centric Nasdaq Composite index is down almost 11% on a year-to-date basis. This statistic compares unfavorably to the broader benchmark of the S&P 500 index, which while down 6.5% across the same frame is a more tolerable pill to swallow.
Further, it’s also possible that HCM’s management team may need to nix blockchain and cryptocurrency-related assets from its focus zone. While 2021 saw investors scrambling to find the best crypto app to alleviate their fear of missing out (FOMO), 2022 may see the rise of an old acronym but with a new definition: regret of misplaced optimism (ROMO).
In the early morning several hours before the debut of HCMAU stock, Bitcoin dropped below the critical psychological threshold of $40,000. As well, Ethereum — the second-biggest crypto by market capitalization — slipped below $3,000. The Federal Reserve’s anticipated tightening of monetary policy has chilled growth-focused stocks and assets, with investors instead scrambling for stable, income-generating solutions.
Finally, as the caboose of a busy week in IPOs, HCMAU stock will likely endure substantial competition for investor dollars. Therefore, prospective buyers must practice careful money management.
HCM Acquisition Financial History
Because of its structure as a SPAC (also referred to as a blank-check firm or shell company), HCM Acquisition has no financial history other than the funds it raised through its IPO. Unlike a traditional market offering where raised capital becomes part of the underlying enterprise’s arsenal to bolster its expansionary efforts, a SPAC’s IPO proceeds enter a trust account, similar to escrow in a real-estate transaction.
Should a SPAC identify a merger target within a specified window — most shell companies have around two years — the proposal goes to shareholders for approval. If accepted, a business combination takes place, with the funds transferred to the merged enterprise.
Notably, SPAC stakeholders can choose to redeem their shares at the contractual redemption rate (usually $10) if they prefer not moving ahead with the proposed business combination. Prospective investors of blank-check firms should recognize that SPAC redemption rates stood at around 50% for most of 2021, which implies that participants would rather absorb the opportunity cost than approve a perceived-to-be-risky investment.
To be fair, though, you must judge each opportunity by its own merits. Should HCM combine with a fintech firm, the projected numbers for the sector are incredibly enticing, with industry experts forecasting the following statistics:
- Digital payments: total transaction value to hit $7.86 trillion by the end of 2022
- Alternative financing: transaction value per user to hit $35,440 this year
- Neobanking: revenue growth to rise to 39.9% in 2023
- Fintech users: number of digital payment users to reach 4.93 billion by 2025
Notwithstanding the sector’s incredible volatility, blockchain-based platforms might still interest HCM’s management team, especially if the present corrective lull in digital assets is later proven ephemeral. If that turns out to be the case, decentralized protocols could again be up for consideration.
One of the stark differences between prior crypto rallies and the enormous valuation swing of 2021 is mainstream acceptance and integration. For instance, popular digital-asset exchange and solutions provider Crypto.com inked sponsorship deals with leading sports leagues like Ultimate Fighting Championship (UFC) and Formula 1. Most extravagantly, Crypto.com bought the naming rights for the formerly titled Staples Center.
Therefore, strong interest in decentralized assets could work to HCM stock’s advantage.
HCM Acquisition Potential
One of the biggest advantages that HCM levers is the fintech industry’s transferability. As traditional cash-heavy societies like Japan witness tremendous growth in their cashless payment ratios, fintech-related solutions will likely become evermore relevant.
Closer to home, the devastation the COVID-19 pandemic wrought will almost surely see a rise in the number of unbanked households. With access to capital crucial for families desiring to get back on their feet, fintech solutions could potentially serve as lifelines.
However, investors should be aware that new finance-related tech names across the board have suffered steep losses this year, including Affirm Holdings Inc. (NASDAQ: AFRM) and Coinbase Global Inc. (NASDAQ: COIN), which are down 34% and 12%, respectively. Further, the fostering of dependency issues combined with some users’ potential lack of financial education could exacerbate social harm.
How to Buy HCM Acquisition IPO (HCMAU) Stock
Interested investors of HCMAU must acquire shares at the open, necessitating knowledge about how to buy stocks. Below is a quick guide.
Step 1: Pick a brokerage.
With the best brokers competing on similar incentives, choose the platform that ideally suits your needs.
Step 2: Decide how many shares you want.
Since SPAC-based IPOs involve stepping into the unknown, always choose a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
HCMAU Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
HCMAU Pre-IPO
Unfortunately, no pre-IPO access is available for HCMAU stock.
Fintech or Finished?
Looking down from above, fintech-based investments seem like no-brainers with their ability to promote access and democratization. Still, some evidence suggests that this innovative solution creates more problems, both for users and investors alike.
Disclosure: The author holds a long position in Bitcoin, Ethereum and Crypto.com Coin.
About Joshua Enomoto
His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.