It’s been a while since we mentioned a SPAC in the Crunch. Today, however, we have a new SPAC story coming out of Hollywood. But before we dive into that, let’s review what a SPAC is, and an entity would choose it as its route to go public. A SPAC, a special-purpose acquisition company, is a blank-check company to raise 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. Institutional investors often create these, especially private equity firms who bring experience that leads to people buying the SPAC. This plays a vital role because retail investors, most of the time, don’t know 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, making institutional backing necessary. 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 go into an interest-bearing trust, which benefits investors. Certain companies prefer SPACs instead of IPOs because it’s quicker and can get capital much faster.
The most recent example comes from Hollywood visual-effects studio DNEG, which combined with the SPAC Sports Ventures Acquisition Corp., a blank-check firm focused on the media and entertainment industries. The SPAC currently sits at around a $1.6 billion valuation. The studio is known for its Oscar-caliber works, playing a significant role in Blockbuster hits like “Inception” and “Tenet.” In addition to some of its most recent movies like the newest Bond film, “No Time To Die,” the company hopes to work on animation and expand into other areas like gaming. At a time when streaming services are pouring hundreds of millions into movies, what do you think about the future growth of this SPAC and will you be investing?
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.