Could giant SPACs be next?(techcrunch.com)
techcrunch.com
Could giant SPACs be next?
https://techcrunch.com/2021/01/22/is-anything-too-big-to-be-spacd/
69 comments
I think this is a rather oversimplified view of SPACs. Matt Levine recently wrote a nice piece about the magic of SPACs. Here is a paper he cites: https://corpgov.law.harvard.edu/2020/11/19/a-sober-look-at-s...
Unfortunately I cannot edit my comment anymore: Here is the text by Levine: https://www.bloomberg.com/news/newsletters/2021-01-08/money-...
Any talk of magic when it comes to money reminds me of the vague, hand-wavy claims of people peddling pyramid schemes.
I mean... read the article before you go off on your soapbox. It's not suggesting that SPACs are "magic" as in pull a rabbit out of a hat. It's actually describing the technicalities of who is paying for what in a SPAC.
The most you can lose is $10? No matter how many shares you own? Or is that per share?
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I thought you get your $10 back if there's no merger. Is this not the case?
OP's information is a bit sparse. A SPAC is a regular stock on the stock market and its share price is tied directly to the amount of money used to instantiate it in the first place. In general, you hold it for as long as you want and it will bounce around within a dollar of its baseline price. You can sell it at any point and get your money back. I can't really think of a scenario in which you would lose more than a few percentage points of your money without a lot of warning.
The downside of SPACs is that if they don't do a reverse merger they're unlikely to appreciate in value like a normal stock (or index), so you're basically gambling the opportunity cost against a chance of significant gain.
The downside of SPACs is that if they don't do a reverse merger they're unlikely to appreciate in value like a normal stock (or index), so you're basically gambling the opportunity cost against a chance of significant gain.
Yes. SPACS are not stocks, not sure what the other replier is talking about (they're SPVs).
If a SPAC doesn't find a company to merge with you get your money back and some interest. If a SPAC finds a company, you have the choice to (1) stay invested in the SPAC and therefore the company or (2) refuse the merger and get your money back with interest.
Interestingly when you invest in a SPAC you actually get two things (1) the option to invest in the company they find, and (2) a warrant to buy even more stock. What's even more interesting is that you could actually sell this warrant while keeping the option to invest in the company the SPAC finds.
If a SPAC doesn't find a company to merge with you get your money back and some interest. If a SPAC finds a company, you have the choice to (1) stay invested in the SPAC and therefore the company or (2) refuse the merger and get your money back with interest.
Interestingly when you invest in a SPAC you actually get two things (1) the option to invest in the company they find, and (2) a warrant to buy even more stock. What's even more interesting is that you could actually sell this warrant while keeping the option to invest in the company the SPAC finds.
One other point that I don't understand well with SPACs warrants.
Once the merger has completed, it doesn't seem like the warrant price really tracks the underlying stock with weird situations where the warrant is priced below intrinsic value. Is there a straight arbitrage to make there or am I missing something?
Not sure I understand what you mean at the end of your comment. If you sell the warrant, you no longer hold the option to buy the underlying stock, do you?
What's the best way to monitor for new SPACs and when those events happen?
I've been following other boards, but saw this website floating around. Many of them have active excel sheets monitoring which ones have announced
https://spactrack.net
https://spactrack.net
A SPAC has no actual competitive edge in the market. They are literally all hype. As long as the stock market goes up, you probably will make money. But be very careful as if the market turns down, I think these will turn out to be worthless.
Given that when a SPACS find a merger target you can chose either to invest in it or get your money back with interest, I'm not sure how the SPAC could ever be worthless.
To take the other side of this perspective:
The edge is twofold. First, it's a way to pool funding using an exchange rather than getting some bank to underwrite an IPO. Second, many of the people who run SPACs are famous investors who have a track record of success and have greater information and access than most investors.
The edge is twofold. First, it's a way to pool funding using an exchange rather than getting some bank to underwrite an IPO. Second, many of the people who run SPACs are famous investors who have a track record of success and have greater information and access than most investors.
It's not $10 for every SPAC, different SPACs have different NAVs.
What's driving the recent popularity explosion of SPACs? They've been around since at least the early 2000s, but total capital participating has risen nearly tenfold since 2014.
From the company's side, there is a willingness to explore non-traditional methods of going public (see also: direct listings, or not going public at all). I would say this has been driven directly by a perception that companies leave money on the table in traditional IPOs, and indirectly by the rise of the "disruptor" mindset led by tech companies where CEOs are more willing to challenge the status quo.
From the investors' side, SPACs are popular because they've been really successful! I don't have stats on this but just buying SPACs surely outperformed any index in the last 5 years. You'd expect this effect to disappear as they get more popular, but it's worth noting that blindly buying IPOs has also been a really good investment strategy - enough first-day pops of 50% or 100% to outweigh the duds - though less accessible to small investors.
From the investors' side, SPACs are popular because they've been really successful! I don't have stats on this but just buying SPACs surely outperformed any index in the last 5 years. You'd expect this effect to disappear as they get more popular, but it's worth noting that blindly buying IPOs has also been a really good investment strategy - enough first-day pops of 50% or 100% to outweigh the duds - though less accessible to small investors.
> From the investors' side, SPACs are popular because they've been really successful! I don't have stats on this but just buying SPACs surely outperformed any index in the last 5 years.
According to Goldman Sachs, SPACs actually underperform traditional IPOs and the market after their merger.
Source: https://www.barrons.com/articles/spacs-performance-ipo-merge...
According to Goldman Sachs, SPACs actually underperform traditional IPOs and the market after their merger.
Source: https://www.barrons.com/articles/spacs-performance-ipo-merge...
I'd suspect there's two different flows towards "non-traditional" listings.
There's the firms with clear market appeal who think they're getting underpriced by a conventional IPO model, but I suspect there's also firms who just want to bust onto the market and sidestep the normal disclosure and research cycle.
There's the firms with clear market appeal who think they're getting underpriced by a conventional IPO model, but I suspect there's also firms who just want to bust onto the market and sidestep the normal disclosure and research cycle.
Speculative opinion - lack of regulations are increasingly appealing in an ever frothier market.
it's exactly that. there's more demand for IPOs than supply of them at the moment, so people are willing to invest in less well regulated options, such as SPACs (which are basically just a workaround the regulatory burden of IPO)
Follow the 'unicorn' startups and you will find all of the origin's for buzzwords.
SPACs have been around for a long time, also they were considered a junk method of going public due to the nature of SPACs. It's the fact that a few startups managed to IPO with solid results and now it's flavour of the month. It's madness to see and I learned a new word because of it 'cargo cult management'.
SPACs have been around for a long time, also they were considered a junk method of going public due to the nature of SPACs. It's the fact that a few startups managed to IPO with solid results and now it's flavour of the month. It's madness to see and I learned a new word because of it 'cargo cult management'.
> and I learned a new word because of it 'cargo cult management'
You're welcome :). Perhaps you can help me back and explain to me, what's up with SPACs this month? I've been hanging around startup circles for years now, and I've never noticed SPACs until some HN threads yesterday or two days ago. And now I see them everywhere. Did Matt Levine write about them recently or something?
You're welcome :). Perhaps you can help me back and explain to me, what's up with SPACs this month? I've been hanging around startup circles for years now, and I've never noticed SPACs until some HN threads yesterday or two days ago. And now I see them everywhere. Did Matt Levine write about them recently or something?
Why yes, yes he did.
https://www.bloomberg.com/news/newsletters/2021-01-08/money-...
https://www.bloomberg.com/news/newsletters/2021-01-08/money-...
Well damn, he really did
Thanks :) I'm not sure why but having a name for this culture just makes things a little easier to digest for me.
https://trends.google.com/trends/explore?q=SPACs&geo=US
I'm trying to find the first mention of a SPAC and which 'unicorn' was the catalyst to trigger this storm. BUT the key reason is that there are far fewer limitations on the promotion of the stock itself. The startup will be bleeding cash, and a IPO requires too much paperwork and hiding numbers gets harder, SPACs will let a startup raise cash when their metrics are poor and they need cash to keep the ride going.
https://trends.google.com/trends/explore?q=SPACs&geo=US
I'm trying to find the first mention of a SPAC and which 'unicorn' was the catalyst to trigger this storm. BUT the key reason is that there are far fewer limitations on the promotion of the stock itself. The startup will be bleeding cash, and a IPO requires too much paperwork and hiding numbers gets harder, SPACs will let a startup raise cash when their metrics are poor and they need cash to keep the ride going.
Perhaps everything comes around again once sufficient people have forgotten the lessons from last time - e.g. maybe the story from the South Sea Bubble in 1720 of "a company for carrying out an undertaking of great advantage, but nobody to know what it is" was an early SPAC ... https://en.wikipedia.org/wiki/South_Sea_Company#Quotations_p...
basically they became much more accessible to regular people, and thus much more exposed to the pump+dump cycle and hucksters. I'm not saying SPACs are bad, but I think that is what is driving the recent craze. The number of wildly speculative and clear astroturf threads on reddit about PSTH or CCIV and others is crazy.
A combination of the Fed printing tons of money along with a lot of retail investors with extra cash and time on their hands.
In additional to what others have said, If you have access to some private "non-traditional capital", say a family office or PE, and they're interested in investing in or buying your company, and you'd like to stay somewhat autonomous but still take their money, a spac is an interesting vehicle.
What's the difference between a SPAC and what used to be called a "reverse merger"?
I.e., when a smaller (but publicly traded) company, merges with a larger private company.
These used to be pretty common scammy ways to generate capital, usually through pump and dumps.
Same thing, just new acronym?
I.e., when a smaller (but publicly traded) company, merges with a larger private company.
These used to be pretty common scammy ways to generate capital, usually through pump and dumps.
Same thing, just new acronym?
> What's the difference between a SPAC and what used to be called a "reverse merger"?
A SPAC is created for the designated purpose to become a vehicle to take another company public. In a traditional reverse merger situation both companies are engaged in some regular business activity.
A SPAC is created for the designated purpose to become a vehicle to take another company public. In a traditional reverse merger situation both companies are engaged in some regular business activity.
You make a SPAC sound even shadier than a reverse merger.
It's more an indication of how (irrationally) intent companies are on staying private well into their days as a global empire.
Why is it irrational to stay private? Going public constrains you with oversight and public shareholder demands.
If you can get access to capital without public shareholders, you absolutely should.
If you can get access to capital without public shareholders, you absolutely should.
It seems like the only rational reasons to IPO are out of necessity (you need to raise the money, your employees will quit without liquidation, etcetera), or short-term greed. What other reason would you want to be public?
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To me it sounds like all cards are on the table, as opposed to reverse mergers.
SPACs are just blank check, shell companies. Often reverse mergers would occur with junk penny stocks resulting in the pump-and-dump activities you mention. I think SPACs are “cleaner”...
My understanding is that a SPAC is more or less a corporation/fund that exists solely for the aim of doing a (or multiple?) reverse merger
I'm pretty bearish on SPACs tbh. Not in the immediate future but 2-3 years out (most of 2021 will be spent on vaccines so I'm sure there will be more stimulus added to the economy).
It's just bonkers that there's so many companies that you can take public with this mechanism without more than a handful being duds so it just seems like market participants who are able to launch SPACs are doing so to take advantage of the mkt conditions to cash out. Also, there are no incentives to keep the SPAC promoters as long term shareholders so they really don't have any reason to not dump their shares after a little bit of time unless they see that these companies will have sustained growth. So to me (with a few exceptions) this seems like a massive pump and dump scheme but with more sophisticated players.
I had initially assumed that there was only a little bit of extra cash floating around in the US on the account of the two stimulus bills passed but I recently read in an article on Bloomberg that the US Govt/Fed bought something in the neighbourhood of $5 TRILLION worth of corporate bonds in 2020 alone to keep the mkts from freezing, etc. And that number that really seemed absolutely unreal to me. Out of that, a lot of it went to companies (esp. those controlled by Private Equity) to pay dividends to their owners. Lots of share repurchases as well I'm sure. So lots of cash floating around with investors for SPACs to keep chugging along till the US keeps adding more money to the mkts.
It's just bonkers that there's so many companies that you can take public with this mechanism without more than a handful being duds so it just seems like market participants who are able to launch SPACs are doing so to take advantage of the mkt conditions to cash out. Also, there are no incentives to keep the SPAC promoters as long term shareholders so they really don't have any reason to not dump their shares after a little bit of time unless they see that these companies will have sustained growth. So to me (with a few exceptions) this seems like a massive pump and dump scheme but with more sophisticated players.
I had initially assumed that there was only a little bit of extra cash floating around in the US on the account of the two stimulus bills passed but I recently read in an article on Bloomberg that the US Govt/Fed bought something in the neighbourhood of $5 TRILLION worth of corporate bonds in 2020 alone to keep the mkts from freezing, etc. And that number that really seemed absolutely unreal to me. Out of that, a lot of it went to companies (esp. those controlled by Private Equity) to pay dividends to their owners. Lots of share repurchases as well I'm sure. So lots of cash floating around with investors for SPACs to keep chugging along till the US keeps adding more money to the mkts.
I heard someone say "Pre-LOI SPACS are loot boxes for investors".
While they may come off as a pump & dump, all SPACs have a floor of hard cash placing them around $10; notably Ackman's PTSH is $20. Looking at IPOE popping 20% off Chamath's tweets, it does feel like some variant of musical chairs.
While they may come off as a pump & dump, all SPACs have a floor of hard cash placing them around $10; notably Ackman's PTSH is $20. Looking at IPOE popping 20% off Chamath's tweets, it does feel like some variant of musical chairs.
If you do not want to hold your money in the bank.
Nor do you want to invest your money in artificially inflated stock.
Coming out of the pandemic we are going to see a monumental shift in lifestyle and economics. It is that crisis that replaces old guards with new champions.
SPACs had a bad reputation, but in the current circumstances seem pretty reasonable. I guess in terms of risk-benefits it is an intermediate between VC & established stocks (and we have seen how stable that has been in 2020 :) )
Nor do you want to invest your money in artificially inflated stock.
Coming out of the pandemic we are going to see a monumental shift in lifestyle and economics. It is that crisis that replaces old guards with new champions.
SPACs had a bad reputation, but in the current circumstances seem pretty reasonable. I guess in terms of risk-benefits it is an intermediate between VC & established stocks (and we have seen how stable that has been in 2020 :) )
“Nor do you want to invest your money in artificially inflated stock.”
How does a SPAC possibly help with that? One of the more notable SPACs was Nikola, which had effectively no revenue, and was very unstable.
https://www.google.com/finance/quote/NKLA:NASDAQ?sa=X&ved=2a...
How does a SPAC possibly help with that? One of the more notable SPACs was Nikola, which had effectively no revenue, and was very unstable.
https://www.google.com/finance/quote/NKLA:NASDAQ?sa=X&ved=2a...
Yeah - Nikola is fraud, I think it’ll go to zero it’s just hard to know when.
This is also the general problem I have with SPACs. The incentives are all wrong.
If you’re a founder and some SPAC approaches you wanting to merge to take you public it means they think they can get a deal from you. They promise price certainty over an “uncertain market”, but if they’re willing to make the deal it’s because they’re betting the market will be good to them.
Why would the founder take that?
They should do their own IPO then if that’s the case or they’re getting ripped off.
Unless their company is fraudulent bullshit in which case they might as well take the SPAC deal and then they can dump their position on the public (after hyping it up of course). Then you can buy your $33M ranch in Utah [0] and retire on the winnings from your successful con.
Founders and SPAC investors cash out rich and the public is left holding the bag.
At best the founder is lazy and doesn’t want to deal with the logistics of a direct listing or IPO and that doesn’t bode well for my impression of the founder either.
I won’t invest in a SPAC and my prediction is that companies that go public via a SPAC will underperform those that go public by other means (especially those that do a direct listing).
[0]: https://www.latimes.com/business/real-estate/story/2019-11-1...
This is also the general problem I have with SPACs. The incentives are all wrong.
If you’re a founder and some SPAC approaches you wanting to merge to take you public it means they think they can get a deal from you. They promise price certainty over an “uncertain market”, but if they’re willing to make the deal it’s because they’re betting the market will be good to them.
Why would the founder take that?
They should do their own IPO then if that’s the case or they’re getting ripped off.
Unless their company is fraudulent bullshit in which case they might as well take the SPAC deal and then they can dump their position on the public (after hyping it up of course). Then you can buy your $33M ranch in Utah [0] and retire on the winnings from your successful con.
Founders and SPAC investors cash out rich and the public is left holding the bag.
At best the founder is lazy and doesn’t want to deal with the logistics of a direct listing or IPO and that doesn’t bode well for my impression of the founder either.
I won’t invest in a SPAC and my prediction is that companies that go public via a SPAC will underperform those that go public by other means (especially those that do a direct listing).
[0]: https://www.latimes.com/business/real-estate/story/2019-11-1...
Isn't all stock valued on speculation.
I guess you would pick SPACs promoted by people you trust will make a good deal.
I guess you would pick SPACs promoted by people you trust will make a good deal.
.. And is still up 100% last 52wks?
I keep wondering what a minimum viable public company would look like with open-book accounting. How much of the SOX compliance burden is merely auditing that your public numbers are close enough to your secret numbers?
Could someone ELI 15?
Sure. What part?
SPACs are basically stocks in search of a company. People put their resources together, and then eventually the guy who runs the SPAC finds a great company to invest in, and uses the SPAC to buy it.
Nowadays, some companies are using SPACs to go public instead of using an IPO. In some ways it's like the work-from-home version of an IPO; the investors are already subscribed, and the stock is already public.
So far, we have seen small companies get acquired by SPACs. However, there are many private and established companies out there. The article asks whether any of those much larger companies are going to become SPAC targets.
SPACs are basically stocks in search of a company. People put their resources together, and then eventually the guy who runs the SPAC finds a great company to invest in, and uses the SPAC to buy it.
Nowadays, some companies are using SPACs to go public instead of using an IPO. In some ways it's like the work-from-home version of an IPO; the investors are already subscribed, and the stock is already public.
So far, we have seen small companies get acquired by SPACs. However, there are many private and established companies out there. The article asks whether any of those much larger companies are going to become SPAC targets.
Thanks that really helped. Seems less shady than IPO via a reverse merger with an OTC stock.
What's the old saying? If everything is "special" then nothing is.
How do you pronounce SPAC?
Exactly how it looks - “Spack”
I ask because it looks like "space" to me.
Unfortunately, in the UK this is a deeply hateful term for disabled people. Actual hate speech if you couple it with violence etc.
What's the old saying? Two cultures divided by a common language..
What's the old saying? Two cultures divided by a common language..
Interesting -- as a UK native, I don't recognise that. Maybe it's limited to certain regions/subcultures/???
The word was definitely used (and was understood to be offensive) when I was growing up - in Worcestershire in the 90s. I wonder if it's fallen out of use since then.
I'm assuming it was meant as a shortening of "spastic"? In which case the version I'm familiar with would be "spaz", though it must be years -- probably decades -- since I've run across it.
I'm from the midlands and live in Yorkshire. It is recognised by people in both places. Odd.
I came across "spack"[1], another unfortunately named repo recently as well.
Another good one is "nonce" - seen frequently in oauth and crypto - always gets a laugh out of the juniors.
[1] https://github.com/spack/spack
Another good one is "nonce" - seen frequently in oauth and crypto - always gets a laugh out of the juniors.
[1] https://github.com/spack/spack
It’s not in particularly common usage anymore though, if at all.
Wow never heard of this and I lived in the UK for an extended period of time. Thanks for the info.
Wow, I had no idea - thanks for the heads up
With so many coming out, just keep jumping to new SPACS as the LOI or DA is announced. Just wanted to share my experiences.
EDIT: Nikola and QuantumScape (NKLA/QS) are the big ones that got attention. Every SPAC is hoping to make a run like QS; 10$ went all the way up to 100$ at one point. NKLA was a scam, but brought a lot of attention