SPAC stands for special purpose acquisition company. SPACs are companies set up with the objective of taking other unlisted companies public, without having the unlisted company go through other routes like an IPO or direct listing. SPACs do this by raising money and then acquiring/merging with an unlisted company. Hence the name. SPACs have existed since the early 2000s. But what is so exciting about them now? Several have listed recently and they are popping! There are over 200 listed SPACs in the US market today and some are backed by renowned entrepreneurs, investors and venture capitalists. An example being Chamath Palihapitiya, who took Virgin Galactic public through Social Capital Hedosophia Holdings that had listed their SPAC with the ticker IPOA. Virgin Galactic (NYSE:SPCE) popped from $10 to $33 and is now trading around $25. Another listed SPAC - IPOE popped from $12 to $21 last week on the news of merging with SoFi.
SPACs typically list at $10. Moreover, when they list, they trade under their own name and ticker. Post merging with a company, their name and ticker change to the acquired company. Just like how Social Capital Hedosophia (IPOA) changed to Virgin Galactic (SPCE) on NYSE.
So how do you choose a SPAC to invest in? You either are a very good predictor, have a crystal ball, know some inside information..... or..... you look at the management. You got to believe that the management has the ability to acquire a great company and make money for the investors. For example, many of my friends and acquaintances speak highly of Bill Ackman. Guess what? He has a SPAC listed called Pershing Square Tontine (NYSE:PSTH), which by the way, is the largest SPAC in terms of money raised till date. In addition to this, there is a lot of data, rumors and news out there too. The famous 'Playboy' is said to go public via a SPAC - Mountain Crest Acquisition Corp (NASDAQ:MCAC). If you believe pornography, sexual wellness merchandise and clothing make a good investment, go ahead and take the plunge.
These are exciting times. Imagine the possibility of a company like Robinhood or SpaceX or any other great company going public via a SPAC you hold. Chances are that you will make a killing. Be aware of the risks too. SPACs are just like any other equity investment; they do not guarantee a return.
So who is your favorite investor/market guru/venture capitalist/entrepreneur? Does she/he manage a SPAC? Leave the details in the comments below so that we all can have in on it.
Happy Investing
Ali Godrej Patel
Disclaimer: I own shares of IPOE and PSTH.
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