Back in 1978, a doctoral candidate looking to make a name for himself at the University of Chicago Graduate School of Business did just that, presenting a dissertation that rocked the financial establishment. Rather than bend the knee to a cult-like adherence to efficient-market theory — which in part asserted the futility of stock-picking activities — the groundbreaking thesis suggested that over time, small-capitalization stocks generate superior returns relative to their larger counterparts.
Considered heretical during an era when leading academics and professional money managers framed their acumen around the concept that capital markets efficiently absorb all available information and investor sentiment, the research that Rolf Banz forwarded was akin to suggesting the Earth was spherical when those around him were committed to the implications of collectively perceived bias.
As science has determined multiple times, the human eye can be deceptive. Indeed, while Banz’s dissertation threatened the vanguard of finance — essentially, that individuals can beat benchmark performance stats through advantaging inefficiencies in the market — his research was compelling, enough so that the Journal of Financial Economics published his work in 1981.
Today, Banz’s contrarian finding set the tone not only for the money management industry but also for investment ventures such as Sunfire Acquisition Corp. seeking the next major discovery.
What Is Sunfire Acquisition?
Established on the premise to facilitate a merger with an enterprise in the technology, media and telecommunications (TMT) industry, Sunfire Acquisition is structured as a special purpose acquisition company (SPAC). Mainly, what distinguishes a SPAC from other publicly traded entities is that it has no underlying operations. Instead, it launches an initial public offering (IPO) to raise funds in support of an eventual merger with a hopefully viable business.
Admittedly, SPAC-based business combinations have not performed well relative to benchmark equity indices over the trailing year. However, Sunfire Acquisition may have an advantage in relevancy. First, TMT is a catch-all phrase encompassing blue-chip giants like Apple Inc. (NASDAQ: AAPL), Walt Disney Co. (NYSE: DIS) and Verizon Communications Inc. (NYSE: VZ).
Second, Sunfire specifically has eyes for the burgeoning TMT industries in the Middle East and/or Asia, thus possibly facilitating small-cap-like growth under this SPAC trade.
When Is the Sunfire Acquisition IPO Date?
Initially filing its IPO prospectus with the U.S. Securities and Exchange Commission (SEC) on Oct. 25 of last year, Sunfire Acquisition will finally enter the IPO calendar on Jan. 20. Shares will list on the Nasdaq exchange under the ticker symbol SUNFU. Each unit comprises one common stock and one right to receive one-eighth of a share following the completion of a merger.
Under the terms of the deal, the SPAC will distribute 10 million shares at $10 each, resulting in a $100 million gross raise before deducting expenses related to the IPO. At this size, Sunfire will command a market value of $129 million. EF Hutton represents the sole bookrunner for the offering.
Like any IPO, myriad variables cloud the proceedings for Sunfire, thus necessitating careful due diligence. However, as both a SPAC and a TMT-oriented endeavor, SUNFU stock incurs additional risks of which prospective investors must be aware.
Primarily, though the vast library of subsegments that undergird the TMT sector — including the increasingly vital cloud computing and data automation categories — enable seemingly endless synergies and opportunities, tech-oriented stocks have suffered worrying blows. For instance, Apple, which soared throughout 2021, finds itself down nearly 7% in the year-to-date through the Jan. 18 session.
The company formerly known as Facebook, Meta Platforms Inc. (NASDAQ: FB), has also tripped up on YTD basis, dropping 6%. Apparently, the social media and tech giant’s pivot to the metaverse was unable to exempt itself from sizable volatility.
Secondly, the concept of SPACs — which has a surprisingly lengthy history but came to prominence again in 2020 — may be wearing out investors’ patience. Much-hyped business combinations, such as Virgin Galactic Holdings Inc. (NYSE: SPCE), have now completely cratered. In fact, over the trailing year, SPCE stock has hemorrhaged an unsightly 70.4%.
If the above statistics weren’t sobering enough, the equities market has been incredibly choppy in recent months but perhaps to little surprise. With the Federal Reserve signaling a shift in monetary policy from a dovish (loose) to hawkish (tight) strategy, investors can reasonably expect borrowing costs to rise.
In turn, investors might rotate out of risk-on assets (as they’ve been doing this year). This circumstance could later impose volatility in SUNFU stock, especially if the underlying SPAC insists on staying the course with international TMT industries.
Sunfire Acquisition Financial History
As a SPAC (which also carries the label blank-check firm or shell company), Sunfire Acquisition has no financial history other than the amount it will raise in its IPO. Following the closure of the offering, the funds will enter into a trust account similar to escrow in a housing-related transaction. Should Sunfire successfully merge with a private enterprise, the raised amount will be part of the end business combination.
However, prior to a merger, a SPAC’s shareholders have an opportunity to vote on the proposed deal. Dissenting shareholders can choose to back out, receiving their money back at the stated redemption rate (usually $10 per share). Interestingly, The New York Times warned in December 2021 that SPAC redemptions up to that point reached around 50%, far higher than the 20% witnessed during 2020.
That roughly half of SPAC investors would choose to absorb the opportunity cost of redemption rather than move through with a business combination speaks volumes. Nevertheless, strong returns are virtually impossible without incurring some calculated risks, which is where SUNFU stock may shine.
According to a Gartner Inc. (NYSE: IT) report published in April 2021, the tech-centric research and consulting firm projected that information technology (IT) spending in the Middle East and North Africa (MENA) would reach $171 billion by the end of the forecasted year, a 4.5% increase from 2020’s tally.
Further, analysis from McKinsey & Company noted that the Middle East and Africa region “represents 8% of the global telecommunications market and has the second-highest growth rate of any region.” Beyond that, McKinsey notes several areas of opportunity, including big data analytics, video and over-the-top (OTT) content and digitalization among other burgeoning sectors.
Finally, the Asia-Pacific region has long been lucrative grounds for tech-based infrastructure and development. Most notably, the Southeast Asia market appears the most promising, with a Reuters report indicating that by 2030, the segment’s internet economy could reach $1 trillion.
Sunfire Acquisition Potential
While relevance will always be a core attribute that investors seek, the TMT sector also features another critical advantage: resilience. According to accounting and consulting giant PwC, while “many industries have been severely affected by the COVID-19 crisis,” for TMT, “the economic impact has been largely neutral, or even positive for some industry segments.”
It’s not just PwC that observed this phenomenon. As stated earlier, Gartner’s data demonstrated that IT spending in the MENA region increased during the new normal. Fundamentally, this trend shouldn’t be surprising as multiple industries shifted operations to remote workflow platforms to mitigate the pandemic’s disruptive force.
Though a promising backdrop for SUNFU stock, prospective investors should bear in mind that SPACs are not beholden to their intended focus. Moreover, the cacophony of potentially negative catalysts, from the Fed’s hawkishness to simmering tensions in eastern Europe could affect the SPAC in unpredictable ways.
How to Buy Sunfire Acquisition IPO (SUNFU) Stock
Interested buyers of SUNFU must acquire shares at the open, necessitating knowing how to buy stocks. Below are key pointers.
Step 1: Pick a brokerage.
With the best brokers competing on similar incentives, spend time to understand which platform ideally fits your needs.
Step 2: Decide how many shares you want.
IPOs are risky, and SPACs have proven volatile. Therefore, 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).
SUNFU 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.
Unfortunately, no information is available about pre-IPO access for SUNFU stock.
Exciting Potential with a Caveat
As Rolf Banz might say, an investment like SUNFU stock will likely carry greater upside potential than a lumbering blue-chip company. However, the caveat to his thesis is that you must weed out as many losing stocks as possible. Thus, whether Sunfire Acquisition can bring the heat remains open for debate.