If you’ve been following the latest trends in the market lately, I’m sure you’ve heard people screaming out SPAC once or twice. These stocks are all the rage these days, as the kids say, and are only growing more popular as time goes on.
Companies like Churchill Capital Corp IV (CCIV) is one of the most popular stocks to be trading in right now. They have recently struck a deal to merge with Lucid Motors, garnering more attention as the stock price has just been soaring the past few weeks. Don’t look at this week’s performance as any indicator of the stock’s health. It was a bloodbath for the entire market.
Another example is one of my current favorite SPAC, Holicity (HOL). They are set to merge with Astra, a rocket launch company in Quarter 2 of 2021.
So you’re wondering what exactly is a SPAC and why are they so popular right now? It seems like every other stock you hear is a SPAC.
What is A SPAC?
So you’ve heard of the companies mentioned are a SPAC. What is it? Why does this guy just drag on and on?
A SPAC is a special purpose acquisition company, or better referred to as a blank-check company. It’s an empty company that raises money to go public. Their main purpose is to collect a lot of money then merge to quickly push a company public. This way the company can skip all the tedious steps of going through an IPO listing themselves.
It’s a concept that’s been around for awhile, but in recent years there’s been a lot of high-profile examples, like CCIV, Nikola motors, Draft Kings and Virgin Galactic. Many companies are starting to do it this way and it seems more and more are going to continue to do so.
Why Use A SPAC?
Companies use a SPAC to cut some corners and go public quickly, but why though? What is so special they can’t wait a few months to do this themselves?
Well for some companies, this is a safer route to take. Yes, it shaves quite a bit of time, a few years in fact, but now there are less SEC interference, and the auditing process is even shortened. Basically, there are fewer headaches involved with going this route.
More benefits include holding onto more control of the process. If you go public the traditional route, you often control when taking on private equity. Going this route allows you to hold on to a larger stake in the company.
Besides being offered an opportunity for a higher valuation, companies can even save money by going this route. It’s very expensive going the normal route, but SPACs typically cover all the costs associated with going public.
Why Are SPACs So Popular Right Now?
First, there’s supply and demand. Fewer and fewer companies have gone public over the last few decades. But the amount of money flowing into the markets have in parallel, been increasing. Since stock exchanges make money bringing in new companies, it’s easier to push a blank-check company.
Also, the SEC have become more involved in regulating these SPACs, which only further improved their reputation. They have set a fixed price for each IPO and regulate voting rights for all members involved in the process.
They streamlined the entire process which only strengthened their reputation and made what seemed like a shady deal, more legitimate. Even big companies like Goldman Sachs once rejected the idea of a blank-check company. Now they are fully supportive. It’s only gotten more reputable as more and more SPAC listings hit the market.
Should You Invest in a SPAC?
Well, I can’t answer that question. First, I’m not a licensed professional. I’m just a newbie that spends way too much time in Excel spreadsheets. But I would say, from my amateur and non-professional opinion, it would depend.
I wouldn’t blindly invest in any SPAC I could find, I would do some research and find the companies that are set to merge with these blank-check companies. Those are the companies I would research and see if they are worthy investments.
For example, I found Astra and did my research. They offer a service I believe will really take off in 5-7 years and will be a great addition to my portfolio. That includes other companies set to go public via SPACs like Momentus.
CCIV is one of the most talked about stocks lately, ready to merge with Lucid Motors soon. That isn’t a company I’m willing to invest in long term, so I watched from the sidelines. But there is a lot of trading and interest involved in this one and only boosted the attention and support for SPACs.
