The SPAC Boom
How does investing your money in a company that only exists on paper sound? The company has no office, no employees, or any active business operations – it’s called a blank check company. Now, how does investing your money in a blank check company that was created for the sole purpose of acquiring an existing, private company sound? These companies are called special purpose acquisition companies (SPAC).
SPAC’s raise money through an initial public offering (IPO) but investors in the IPO’s have no clue what company the SPAC will acquire. Recently, former baseball star Alex Rodriguez filed to create a SPAC called “Slam Corp,” which seeks to acquire a company in the “sports, media, entertainment, health and wellness and consumer technology sectors.” Slam Corp is looking to raise up to $575 million in its IPO.
On Tuesday, former San Francisco 49ers quarterback turned social activist Colin Kaepernick also launched a SPAC, seeking to raise more than $250 million in its IPO. The SPAC is called Mission Advancement Corp, and it seeks to acquire companies it believes will have a positive impact on society.
SPACs have become extremely popular in the past two years, outnumbering, and raising more capital than traditional IPOs. In a recent article in the Wall Street Journal talking about the SPAC boom, it was revealed that SPAC’s had raised $38.3 billion since the start of 2021 while traditional IPOs have only raised $19.8 billion. Why are these speculative investment vehicles raising so much capital?
The emergence of the retail trading frenzy this year offers one explanation. According to an article on CNBC, Bank of America’s customer flows revealed retail investors made up 46% of the trading volumes in SPAC’s during January, up from 30% just two months ago.
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.
