SPAC Attack 👊

Table of Contents

SPAC Attack

If you’ve been paying attention to the stock market in the last year, you have learned many things. Elon Musk, Reddit, cryptocurrencies, inflation, and Cathie Wood have taken up most of the headlines, but that’s just a smidge of the new market we are seeing. Since the market has been very bullish, many companies have filed for IPOs too, with some of our favorite companies like DoorDash and Airbnb entering the New York Stock Exchange and the Nasdaq. However, a new method of entering the market has become very popular in 2020 and 2021, something you might be slightly familiar with: SPACs.

A SPAC, or special-purpose acquisition company, is a blank-check company with the purpose of raising capital to merge with a private business. The only asset these companies contain is the capital raised as they have no service or product to provide. These are often created by institutional investors, especially private equity firms who bring experience that leads to people buying the SPAC. This plays an important role because retail investors, most of the time, don’t know exactly what private company they will invest in when they put their money into a SPAC. The acquisition companies have targets in mind, but those aren’t released to the public, which makes institutional backing important. When a merger occurs, the SPAC sponsors often get a 20 percent stake in the company, and retail investors who bought the SPAC can swap their shares for the merged company or redeem their investment back with the interest it has gained. Interest? Yes, the funds the SPAC raises goes into an interest-bearing trust, which provides a benefit to investors. Certain companies prefer SPACs instead of IPOs because it’s quicker, and the company can get capital much faster.

Many companies you know have entered the market through a SPAC. Virgin Galactic merged with Chamath’s SPAC, Social Capital Hedosophia, DraftKings merged with Diamond Eagle Acquisition Corp, and Bill Ackman created Pershing Square Tontine Holdings, which is the largest SPAC. These companies often fall into the speculative category, with many of these private businesses recording losses. There have been success stories like DraftKings, but companies who have entered through a SPAC have often lagged behind the overall market, while IPOs have stood their ground.

This has been amplified recently. In the market selloff, SPACs have taken a major hit, with companies like QuantumScape down nearly 50 percent from its highs. This also comes after regulators are scrutinizing the idea of SPACs, which cooled the SPAC market down. This selloff is the first obstacle that SPACs have faced as 2020 was a great year for them, along with other speculative assets. Volatility is a major problem, with many SPACs having heavy derivatives volume in the form of options and stock warrants. SPAC bulls are still confident, but these stocks have been put aside with investors shifting to either value or other speculative investments, but it’s still a fact that SPACs are performing worse than most assets now. What do you think about SPACs?

I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

Share:
More Posts
The Crude Oil Bust 🛢

Surging global crude oil prices, driven by factors like OPEC+ production cuts have pushed U.S. West Texas Intermediate futures to over $95 per barrel.

Metaverse Returns 🤖

Meta, led by CEO Mark Zuckerberg, is intensifying its commitment to innovation in the Metaverse through the introduction of the Quest 3 VR headset.

Higher Rate Households 📈

The recent Fed decision to pause rates has left the federal funds rate at its highest level since 2000.

Get your daily Invstr Crunch

Get the market news and updates you need, delivered to your inbox or available on our daily podcast.

Risk Disclosure:

Invstr is not a bank and banking services are provided by Vast Bank, N.A.

Brokerage and Banking services are currently only available to U.S. residents.

Invstr app and web services are provided by Invstr Ltd. Advisory services are provided by Invstr Financial LLC, an investment adviser registered with the Securities Exchange Commission (SEC) details of which can be obtained here. Securities brokerage and custody services are provided by Apex Clearing, a broker dealer registered with the SEC and a member of FINRA and SIPC. There is no bank guarantee on securities and securities may lose value.

Investing involves risk and can lead to losses. Past performance does not guarantee future results.

Invstr app and web services are provided by Invstr Ltd. Invstr+ advisory services are provided by Invstr Financial LLC, an investment adviser registered with the Securities Exchange Commission (SEC). Securities brokerage and custody services are provided by Apex Clearing, a broker dealer registered with the SEC and a member of FINRA and SIPC. There is no bank guarantee on securities and securities may lose value. Vast Bank N.A. a nationally chartered bank and member of the FDIC, provides the banking products, including the products and services related to digital asset accounts. As with any asset, the value of Digital assets can go up or down and there can be a substantial risk that you lose money buying or holding digital assets. You should carefully consider whether trading or holding Digital assets is suitable for you in light of your financial condition. Your digital account does not support wallet to wallet transferring of your digital assets (i.e. cryptocurrencies) outside the platform. Any Digital Assets in your digital asset account are not insured by any government entities, including but not limited to FDIC or SIPC. The Invstr Visa® Debit Card is issued by Vast Bank, N.A. pursuant to a license from Visa U.S.A Inc and may be used everywhere Visa debit cards are accepted. Invstr Ltd, Invstr Financial LLC and Invstr Securities Ltd are subsidiaries of Marketspringpad Holdings (collectively “Invstr”) and Invstr is solely responsible for the application services and website content.

Watchlists provided when users first access the service are not a recommendation to invest. Instead they are provided to help users better navigate the service. Users are free to edit and create their own watchlists. From time to time, Invstr will suggest instruments solely based on an individual’s interest and the interest levels of the Invstr community. The statistical and portfolio builder models generated by Invstr do not reflect actual investment results and are not guarantees of future results. Comments provided by Invstr leaders, influencers or members of the Invstr Community are not recommendations and should not be construed as such. Invstr does not endorse the content or the positions posted by them. Their investment approach, and that of the models provided by Invstr, may be different from yours and may not be appropriate for you.