Is Zi Toprun Acquisition Corp. IPO a Good Investment?

Read our Advertiser Disclosure.
Contributor, Benzinga
May 18, 2022
Open-Close-
Vol / Avg.- / -Mkt Cap-
Day Range- - -52 Wk Range- - -

Following a sharp loss of sentiment toward new public listings — exacerbated by black swan events like Russia’s invasion of Ukraine — this segment of the capital markets is gradually returning to prior norms. However, the rising enthusiasm also includes special purpose acquisition companies (SPACs) like Zi Toprun Acquisition Corp., which raises some important questions.

Primarily, SPACs post-business combinations have not performed well this year, lagging benchmark equity indices. Also problematic is that the market as a whole is under severe selling pressure. While myriad headwinds have coalesced into a formidable storm, the main talking point surrounds inflation. With households suffering from rising costs of living, fewer consumer dollars are available for businesses, causing hardships across several industries.

At the same time, it wouldn’t be fair to lump all SPACs into the same (sinking) boat. Though the segment is extremely dangerous based on recent trends, Zi Toprun does carry the potential to move against the grain because of its relevant core focus: seeking a merger target within the broader transportation industry, including subsegments like batteries and automated driving.

Indeed, if Zi Toprun eventually merges with an automation enterprise, it could help mitigate some of the stark challenges of the post-COVID-19 era, particularly the attrition rate of truck drivers. Still, aspirational businesses carry burdens of credibility, meaning that you should not expose yourself too heavily on risky projects.

What Does Zi Toprun do?

Zi Toprun is a SPAC, which is a special class of shell company or blank-check firm. Rather than present a business of its own to public investors, a SPAC launches an initial public offering (IPO) — or the first time a private enterprise distributes its equity shares to retail buyers — as a shell entity. Once publicly traded, the SPAC’s sponsors then seek out a hopefully viable company with which to merge.

Should investors approve the merger, the SPAC and the target enterprise enter a business combination, with the latter providing the business while the former facilitates access to the capital market. The SPAC’s identity dissolves, with the entity becoming absorbed into the target’s corporate identity.

One of the drawbacks of investing in SPACs pre-merger is that you don’t know what you’re really getting yourself involved in until the merger announcement. However, Zi Toprun provides some clues with its focus on transportation. In addition, it specifically mentioned these segments in its Form S-1 document filed with the U.S. Securities and Exchange Commission (SEC):

  • Battery or charging businesses: Though not specifically detailed, the implication is that these sectors involve the burgeoning electric vehicle (EV) industry. If so, Zi Toprun would tie itself with a high-growth market. According to Precedence Research, the EV battery market size could be worth nearly $560 billion by 2030, representing a compound annual growth rate (CAGR) of 32% from 2022 to the forecasted year.
  • Autonomous driving: One of the hottest market segments of tomorrow, if Zi Toprun succeeds in merging with an autonomous driving firm, it could tap into a wellspring of lucrative business opportunities. According to Allied Market Research, the global autonomous vehicle market could reach a valuation of $2.16 trillion by 2030, a CAGR of 40.1% from 2021 to the forecasted year.
  • Microchip design and technology: Transportation vehicles nowadays can’t go anywhere without semiconductors. Although it’s a slower-growth segment, the value of microchips is that they’re relevant right now. According to Reportlinker.com, the global automotive chip market could grow by nearly $7 billion between 2021 and 2025, a CAGR of 4.53%.

Notably, Zi Toprun plans to focus its merger intentions with business in North America, Europe and Asia (excluding China). Members of the SPAC’s management team have experience in the automotive market, as well as in mergers and acquisitions.

When is the Zi Toprun IPO Date?

Among a growing number of new listings following a tumultuous period earlier this year, Zi Toprun will ink its name on the IPO calendar on May 18, 2022. Shares will trade on the Nasdaq exchange under the ticker symbol ZTOPU.

Of particular interest to market observers is the size of this IPO. Per its prospectus, Zi Toprun intends to raise $110 million through the distribution of 11 million units at a price of $10. Each unit consists of one share of common stock and one warrant, exercisable at $11.50. Under these terms, the SPAC will command a market value of $143 million.

Zi Toprun casts a wide international net, although it will not pursue a business combination with a China-based outfit. Such a decision could mitigate some of the geopolitical risks associated with western markets’ relationship with China. However, it’s a double-edged sword as it’s the second-biggest economy and the biggest automotive sector. Notably, Zi is targeting businesses with valuations between $200 million and $600 million.

Also a point of interest is that Zi Toprun filed to go public confidentially on July 12, 2021. Though it is speculation, the decision to launch now may reflect broader improvements in business sentiment. Investment banking firm EF Hutton Group is the sole bookrunner for the IPO.

Before pulling the trigger on ZTOPU stock, you should be aware of the key distinctions between “regular” IPOs and SPAC-based listings. Perhaps the biggest consideration is the concept of redemption. Essentially, pre-merger-announcement SPAC stakeholders have a “money-back guarantee” of sorts, to borrow a phrase from a Reuters article. If shareholders don’t like the deal, they can reject it and thus redeem their shares at the IPO price (usually $10).

According to a Harvard Business Review report, “researchers found that among the SPACs in their study, the average rate of redemption per deal was 58%, with a median redemption rate of 73%. Not only that, in more than a third of the SPACs, over 90% of investors pulled out.”

Therefore, it’s critical to be sober minded with SPACs. More often than not, the proposed merger deal is not worth astute investors’ time or money.

What Analysts are Saying About Zi Toprun IPO

Because of its status as a SPAC, Wall Street analysts have not weighed in on Zi Toprun. Indeed, it’s exceptionally difficult to provide a trajectory-based forecast on ZTOPU stock until the underlying management team discloses its merger target. Unfortunately, SPACs represent a shot in the dark.

However, the disclosed focus of transportation in the S-1 document seems credible as that’s where much of the executive experience and acumen is directed. Of the areas of interest, the autonomous driving element would be the most impactful.

Throughout the new normal, supply chain disruption has sadly been a recurring theme. Undergirding this concept is the attrition rate among truck drivers — quite literally the hands and feet of global trade. Never an easy job, the enormity of COVID-19 and its resultant devastation imposed gargantuan pressures on these workers, posing both near-term and long-term risks to the economy.

According to the Sam M. Walton College of Business at the University of Arkansas, drivers experiencing inefficacy — or feelings of ineffectiveness — have contributed strongly to burnout. Theoretically, then, a machine-learning-based protocol to automate transportation would help keep the economy moving.

On the other end of the equation, while automated driving arguably enjoys the greatest upside, it’s fraught with possibly the most risk. According to researchers from the Massachusetts Institute of Technology, it could be another decade before automated transportation becomes a reality. Further, even that may not be a reasonable target.

Thinking longer term, should machine-driven protocols fail, the litigatory nightmare could be unprecedented. Therefore, Zi Toprun may choose to go with a more reasonable merger target such as semiconductors. However, competitive concerns and a lack of distinction may impede progress in this supposedly safer route.

Zi Toprun Financial History

As a SPAC, Zi Toprun features no financial history other than whatever it will raise in its IPO. This fund will be held in escrow until a merger deal is finalized. If no merger occurs, shareholders will usually receive their money back.

Though you might be tempted to treat pre-merger SPACs as a risk-free investment, keep in mind that the redemption rate typically occurs at the IPO price. Therefore, if you acquire ZTOPU stock at a rate higher than $10, you will lose out through redemption.

In the case of buying ZTOPU below $10, you must factor in the opportunity cost of profitably redeeming ZTOPU compared to possible better uses of the principal.

Zi Toprun Potential

One factor that can help gin up support for Zi Toprun is renewed interest in IPOs. Though SPACs are always a tricky subject, the underlying merger focus is relevant enough to potentially draw market participants.

On the flipside, 2022 is turning out to be an incredibly challenging year. With global recession fears rising and geopolitical tensions escalating, risk-off sentiment is high. Therefore, it’s possible that ZTOPU stock could sit for months if not years.

Where to buy Zi Toprun IPO Stock

If you want to participate in the Zi Toprun IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

ZTOPU 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.

ZTOPU Pre-IPO

Though no pre-IPO access is available for ZTOPU, ClickIPO.com provides retail investors with many “early bird specials.”

Join our IPO Newsletter for FREE

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.