Legato Merger Corp. II Stock

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Contributor, Benzinga
April 20, 2022
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To say that the Biden administration needed a political victory would be one of the understatements of the year. After winning a contentious election in 2020, the president had the unenviable task of navigating multiple crises from the COVID-19 pandemic to economic pressures to brewing social unrest. However, the combination of troubles was too much, leading to an unfavorable rating.

Nevertheless, some optimistic signs point toward a gradual healing of the nation. Most significantly, President Biden signed a $1 trillion infrastructure bill into law on Nov. 15, potentially setting in motion several components of his domestic spending agenda, including funds to upgrade outdated roads, bridges and transit systems.

A few days later, the House of Representatives passed a massive extension of social safety nets in the form of a $1.75 trillion bill, which among several initiatives will fund universal pre-kindergarten programs, Medicare expansion and renewable energy credits. Now, Biden’s signature Build Back Better Act will head to the Senate, where it could face revisions.

Overall, it’s an encouraging development for the administration and broader economic stability. As well, one of the key beneficiaries could be the infrastructure-focused Legato Merger Corp. II. It’s just IPO’d, but it’s a pre-IPO stock in need of a merger partner. Take a look at this stock that’s trying to straddle the fence between a traditional merger and window shopping.

When Did Legato Merger Corp II IPO?

Legato Merger Corp IPO’d on November 22, 2021 at $11.50 per share

Legato Merger Corp. II Financial History

Because Legato is a shell company with no underlying operations, it’s difficult to provide specific financial data other than an estimated enterprise value for LGTOU stock based on the terms of its IPO. Still, the SPAC’s prospectus filed with the SEC provides valuable clues.

First, as a blank-check firm, Legato is not obligated to follow the merger intentions stated in its prospectus. However, the company is targeting the “infrastructure, engineering and construction, industrial and renewables industries” primarily because Legato’s management team leverages experience and expertise in these specialties. Therefore, pivoting away from these areas will unnecessarily negate the SPAC’s competitive advantage.

Second and on a related note, SPAC veterans David Srgo and Eric Rosenfeld led the way for Legato. Acting as the vice chairman of the board and chief SPAC officer, respectively, the 2 have led 7 previous shell-company-based business combinations. Most recently, Srgo and Rosenfeld helped bring Algoma Steel Group Inc. (NASDAQ: ASTL) to the market via a reverse merger.

Third, Legato’s management disclosed lofty ambitions for its future target enterprise, seeking to shed its emerging growth company status as soon as possible. One of the criteria that the leadership team cited as achieving this goal is by registering a total annual gross revenue of at least $1.07 billion.

While the front-facing narrative for LGTOU stock appears attractive, prospective buyers must do their homework, not only on the viability of the infrastructure focus but also on the specific terms of Legato’s offering. Primarily, management discloses on page 37 of its prospectus that normal protections associated with blank-check firms will not apply to LGTOU.

Nevertheless, it’s not entirely fair to characterize Legato as a purely speculative play. True, nothing necessarily prevents management from securing a business combination just for its own sake, leaving shareholders holding the bag. However, this cynical outlook is unlikely given that management is incentivized to maintain its productive reputation.

Further, the political ecosystem is exceptionally powerful for LGTOU stock. Following years of divisive rhetoric in Washington, cultivating those rare instances of bipartisanship will be a priority across the aisle. Such a sentiment augurs well for enterprises dedicated to rebuilding the U.S. from the devastation of the COVID-19 pandemic.

Because of the condensed business week beginning Nov. 22, new scheduled listings on the IPO calendar are understandably light. Even with timing aside, though, Legato Merger Corp. II would probably rank as one of the more intriguing opportunities, both from the size of its offering and its relevance.

On Nov. 5, Legato Merger filed its IPO prospectus with the U.S. Securities and Exchange Commission (SEC), disclosing its intention to raise $200 million through the distribution of 20 million shares at an initial offering price of $10. “Each unit consists of one share of common stock and one-half of a warrant, exercisable at $11.50,” per Renaissance Capital. Under these terms, Legato will command a valuation of $261 million.

Analysts expect the company to price its IPO on Nov. 22, with shares available for public trading on Nov. 23. The equity unit will list on the Nasdaq exchange under the ticker symbol LGTOU. EarlyBirdCapital, Inc. represents the sole bookrunner for the deal.

As you might guess from the name of the firm, Legato Merger is a special purpose acquisition company (SPAC). Lacking operations, Legato’s main purpose is to launch its own IPO with the sole purpose of identifying a viable merger target. From there, a business combination occurs, with the SPAC absorbing the identity of the target enterprise.

In this manner, SPACs (also known as shell companies or blank-check firms) represent a symbiotic relationship. By default, corporations like Legato offer a ready-made path to the capital market. On the other end of the deal, the target enterprise provides the actual business.

Though the process sounds enticing for retail investors — for instance, SPACs provide opportunities that might not otherwise enter the public arena — prospective buyers of LGTOU stock should be careful. Mainly, a shell company fosters a quicker avenue for startups to go public, but its rapidity tends to gloss over the careful vetting procedure that’s standard for traditional IPOs.

Further, as Harvard Law School warns, SPACs may take a circuitous road to the capital market. “Along the way, SPACs give shares, warrants and rights to parties that do not contribute cash to the eventual merger. Those essentially free securities dilute the value of shares that SPAC investors purchase.”

As successful post-merger SPACs like DraftKings Inc. (NASDAQ: DKNG) have demonstrated, not all blank-check firms are equal. Therefore, perform your due diligence before making a final decision on LGTOU stock.

Legato Merger Corp. II Potential

To be blunt, if Legato Merger shifts its focus away from the initially stated industries, any analysis of its potential will be rendered moot. However, should management stay the course with its infrastructure-related ambitions, LGTOU stock could move above its IPO price.

You only need to look at recent history for evidence. Throughout the campaign trail leading up to the 2016 presidential election, then-candidate Donald Trump praised U.S. industrial icons like Caterpillar Inc. (NYSE: CAT) while criticizing foreign competitors like Japan’s Komatsu (PINK: KMTUF).

Ordinarily, rank-and-file politicians avoid making controversial statements if possible. However, Trump’s charisma and influence managed to gloss over his indelicate approach. Perhaps not coincidentally, Caterpillar shares are up nearly 110% over the trailing 5-year period while Komatsu shares are up only 12%. Therefore, politics can play a substantial role in the investment markets.

But a major risk to LGTOU stock is that the political underpinnings are not holistically favorable to Legato. Former President Trump still levers considerable influence over the Republican party, meaning that Biden’s economic initiatives will likely meet concerted resistance. Thus, upside for Legato’s future business combination relies on multiple, volatile variables.

How to Buy Legato Merger Corp. II IPO (NASDAQ: LGTOU) Stock

For those who know how to buy stocks, you can carry on as normal. If you don’t, follow the steps below.

Step 1: Pick a brokerage.

Any reputable investing institution will allow you to buy SPAC shares. Therefore, narrow your list of best brokers to platforms that feature the attributes you care most about.

Step 2: Decide how many shares you want.

IPOs are always risky and pre-merger SPACs are especially so because you don’t know what you’re buying. Therefore, choose a balanced share count to mitigate potential downside.

Step 3: Choose your order type.

Before trading, understand 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:

  1. Select your action type (buy or sell).
  2. Enter the shares you want to acquire (or sell).
  3. Hit the Buy (or Sell) button.

Follow the same sequence for limit orders (but include your execution price).

Intersecting Profitability with Politics

While infrastructure represents a permanently relevant narrative, the current political underpinnings make LGTOU stock that much more compelling. However, Washington’s vituperative divide imposes great uncertainties. Remember, this is a pre-merger stock that’s seeking a partner. So, you’re counting on the firm to get it right because it can only merge once.

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.