|
A SPAC is a shell company that lists on a stock exchange with the intention of merging with a private firm to take it public. SPACs have become a popular alternative to traditional public offerings. SPACs have raised $100 billion this year, already topping 2020 figures. Currently everyone and their mom has a SPAC, including Shaquille O’Neal, Serena Williams and Tony Hawk.
SPAC creators ("sponsors") have figured out a way to make money even if the company they take public doesn't do well, which would cause subsequent investors to lose money. The sponsors can buy shares of the SPAC at a large discount and make several times their initial investment upon the merger. M. Klein & Co. made ~7x on its insiders shares in MultiPlan, while the stock price has declined and investors have suffered losses. (Michael Klein, Managing Partner of M. Klein & Co. pictured above)
Short Squeez Takeaway: The SEC has been wary of SPACs for a while and recently came out with some new accounting rules, which have slowed down SPAC activity in April. The sponsor returns might also be short lived as regulators are closely examining disclosures of discounted investments. Unlike typical IPOs, many private companies going public through SPACs don’t yet have revenue, but promote their "growth prospects." If this doesn't sound sketchy af, we don't know what does. The SPAC boom is still in full swing but we predict it won't last too long with the SEC entering the chat now.
|
