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SPAC To The Future: An AI-Fueled Freight Marketplace With Boundless Potential

Transfix and special purpose acquisition company (SPAC), G Squared Ascend I GSQD, announced their intentions to merge in an investor conference call held Tuesday morning (9/21). The two companies laid out their plan to take this revolutionary freight technology company public. The presentation outlined Transfix's operations & financials, along with a breakdown of how the unconventional public debut will be funded. This deal is expected to close in the first quarter of 2022.

Transfix is a digital business-to-business (B2B) freight marketplace powered by AI and machine learnings to deliver best-in-class outcomes. This enterprise's vision "is to build the world's most connected & intelligent freight platform." Transfix is growing with this nascent technology-powered shipping space, but they are not alone. Uber Freight is also staking its claim in this opportunity-induced segment, as on-demand shipping needs proliferate in this rapidly digitalizing economy.

Transfix has illustrated a proven track record of consistent outsized growth underscored by margin expansion, with a customer retention rate of 93%. This data and automation fueled enterprise is swiftly expanding its platform capabilities through strategic acquisitions and smart organic investments to maintain its market-leading positioning. Over the past 5 years, Transfix has achieved a topline compounded annual growth rate (CAGR) of 81%, and this is not anticipated to slow down much, with management projecting a 55% CAGR over the next 5 years.

The notable trepidation that could keep investors at bay here is Transfix's lack of profitability, something that is becoming increasingly common in this overzealous public equity market. Still, this freight marketplace has illustrated tremendous margin improvements thus far that should translate to robust, profitable growth over the next few years. Management is currently forecasting a positive EBITDA by the end of 2023.

At its current price point, the SPAC shares are trading at around a 3.5x price to 2021 sales, which is exceptionally reasonable for a stock with this type of growth outlay. However, you are taking on the risk of uncertainty surrounding mounting competition and prolonged income losses. That being said, these are the type of risk plays that will yield the most significant long-term returns if its assumptions hold up over the next 5 years.

GSQD experienced incredible volumes when the investment group announced their intentions to take Transfix public, yet there has been little movement in the actual equity. On the other hand, the warrants for GSQD (GSQD.WT), which are effectively a 5-year options to purchase the shares at any price above $11.50, took off with a 25% pop on the day of this announcement. I would stay with the still hindered equity, which has tremendous upside going into this unique merger.

The entire SPAC market fell out of favor earlier this year after investors experienced some extensive burns in this overzealous & convoluted investment space. Now it would seem that this nascent asset class has sunk back below investors' radars and opportunity is growing ripe for well-positioned (post-merger announcement) SPACs. GSQD may be a SPAC to consider in this post-bubble environment.

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