A Bit of Theory

• SPACs are “Special Purpose Acquisition Companies”, a public (!) firm with only cash as an asset, which is used to acquire another firm to make it instantly public.

• Closing a deal with a SPAC and becoming public is roughly 3-4 months’ work vs 6-9 months to do the listing [actually longer].

• 2020 (!!!): 44 SPACs went public ($13.5B) vs 31 SPACs ($7.4B) in 2019.

Why Do It?

• If SPACs have experienced Board Directors (who will stay) or committed investors believing in the business. (otherwise it’s a drag)

• Listing via a SPAC reduces volatility as opposed to the usual boom and bust.

• Oversupply of SPACs: money chasing acquisition targets.

What to Look for in SPACs

• Strong Leadership. Experienced Directors make a big difference. Or even can put in their experienced CEO. [MK: Clearly an incumbent CEO will jump for joy.]

• Committed Investors. The best deal is when the SPAC investors believe in the industry and hold on to the investment.

• Lockup Periods. They are not necessarily standard but with SPACs they seldom cover all employees.

• Realistic Expectations. SPACs are not blind and are smarter than an average investor Joe. Also, high incoming valuation for a business is likely to drop.

Link