The "SPAC Bubble" is here to stay
Updated: Jan 11
The "SPAC Bubble" is here to stay
When I describe a SPAC to someone, it gets sketchy real quick as if I'm in the middle of a drug deal. The conversation normally goes as follows:
Person: What's a SPAC?
SPACdaddy: A fund that allows you to invest with titans of industry & you can't lose if you invest close to $10/share.
Person: *walks away*
Not my problem if they decide to dip & not entertain my pitch. To add to the public's skepticism, I've seen a lot of articles headlined "The SPAC Bubble May Burst" (WSJ). Anytime something gets hot, haters are all over it. Especially when it involves large sums of $ and massive gains.
Truthfully, I hear what they're saying... they honestly sound as catchy as Mortgage Backed Securities (The Big Short & the 2008 crash will teach you about this). The classic SPAC line is "common shares can't go under $10 and they always double in value, it's super safe"... and while there is truth to that, it gives SPACs a sketchy wrap. That being said, I know more about SPACs than anyone I know, have consulted hedge funders/investment bankers, and have invested 95% of my wealth into SPACs. I'll stand behind any info I spew.
So, whats the response to a classic nay sayer?
1. History of the SPAC - Modern day SPACs have existed for 30+ years but have only gained popularity as of recently. They've been around since the 1990s and only started to come back into play in 2017. In a time where IPOs were struggling and private companies needed liquidity quickly, SPACs boomed during COVID & saved the day. The 'IPO in a box' solved a lot of IPO inefficiencies and attracted the worlds best investors (Goldman Sachs, Pimco, Peter Theil, Richard Branson, endless others).
2. SPACs outraised the best investors - If you can't beat em, join em. Venture Capitalists and Private Equity guys realized that SPACs are raising incredible amounts of $ from investors + the public. They were getting beat out on deals left and right so they said, "let's start our own monstrous SPACs and see who can raise the most $." This is exactly what Bill Ackman did as he launched a $4 billion SPAC... In the beginning of 2020 there were less than 40 spacs on the market. As of 2021, there are 305+ SPACs that have raised a combined $92b of capital.
3. It's appealing to companies - IPOs used to be the center of attention but in recent years, they've become a hassle. The SEC has made it extremely timely/messy with heavy due diligence into the financials of companies. This leads to public scrutiny and media attention that has been known to blow up IPOs before they even happen. SPACs allow for a lot of the backend to be hammered out before merger announcement and then a 2-3month timeline for IPO. This beats out the typical 6-12month average IPO process. In addition, SPACs raise a bulk of the $ in advance which is why it's an 'IPO in a box' aka 'fully baked ipo.'
4. Management - There are dozens of SPACs with killer a management teams. Titans of industry launch SPACs and partner with us simpletons to acquire behemoths. Some of these billionaire SPAC owners add a lot of value to the merging company and join their boards to unlock many doors for business growth. Name another opportunity where you can partner with countless titans of industry. Ya, exactly.
5. The small guy can play - My favorite thing about SPACs is that we can get in pretty close to the ground floor. It's the closest most of us will get to the NYC rooftop corner office because with a SPAC, you are the venture capitalist! You have a variety of industry titans running monster sized SPACs and all you have to do is put your money in close to $10/share, trust they'll make a killer acquisition, and go along for the ride. In 2020 the average SPAC timeline was 4.6 months before announcing a target. I challenge anyone to name a safer more lucrative investment that you can easily double your $... These 5 arguments will shut up any skeptic no matter their profession. If your finance friends push back, send them to the SPACdaddy and I'll set them straight.