The SPAC timer is working and billions must be invested

Decades ago, there were a number of comics in which Jimmy Olsen, the Daily Planet’s puppy reporter and recurring Superman character, faced a challenge. He had written about the rampant spending of a billionaire.

The rich man turned around and challenged him to spend an amount of money, I think it was $ 1 million, but this was a long time ago, in 24 hours. He could not buy more than one item and had to spend it all to maintain an equivalent amount. So it was a yacht here, a plane there, all of which was insane because even then I was racking up bills far beyond what I needed to spend.

In the end, he had a penny left when the time was up. The irony was that he had parked his car, could have used the dime to spend some time at the parking meter, and ended up with a parking ticket. But ultimately, a lot of money goes to charity.

What brought that to mind was a new report from the creators of Calcbench financial software. (Disclosure: I have a free journalist account, I don’t mention them as a result, and I like their tools.) The company added coverage from SPAC, or special purpose acquisition companies. The numbers show that there will be a flood of investments, and when there is a crowd, you can practically bet on the high prices.

If you’ve managed to avoid all the noise about the category, SPACs are ways to go public without a traditional initial public offering. A SPAC is a public shell that raises money and then uses it to buy some businesses. The company subsumes the SPAC and becomes a public company, ultimately capable of raising money on the capital markets by selling shares. WeWork, which had a disastrous attempt at an IPO in 2019, is in the process of finally getting your wish through a SPAC.

Latest from WeWork “business updateHe mentioned numbers but none with dollar signs, which raises the question of how good the performance has been if things like revenue and earnings are kept out of sight. It should also be a more general warning sign for investors.

Calcbench performed a company search with a SIC code of 6770, the code for blank check companies, or SPAC. As of December 31, 2020, there were 189 SPACs that had presented current financial statements. However, in the first quarter of 2021, the number jumped to 358. “Huge amounts of money were invested in SPACs in the first quarter of 2021, when the SPAC frenzy appeared to be at its peak,” the blog post noted. Calcbench. “Total assets soared from $ 12.56 billion in the fourth quarter of 2020 to more than $ 109 billion in the first quarter of 2021, while average assets per company increased from $ 172 million to $ 311 million in the same period. “

With the Calcbench tool, you can see that the variation is extremely wide. In the first quarter of 2021, eight of the SPACs had at least $ 1 billion in assets, and the largest, Pershing Square Tontine Holdings, had just over $ 4 billion.

At the other extreme is Sandston Corp. with $ 203. Not a billion, millions, or even a thousand.

In terms of income, only 20 of them had them. Infrastructure and energy alternatives made $ 276.4 million in the quarter at the top. At the bottom of the actual income was Plum Acquisition Corp., at $ 2. No, the decimal is not out of place. The vast majority had zero.

What this suggests is that most SPACs, who only have two years to make their investments before having to pay investors back, desperately need a deal. Many have significant funds.

That’s the formula for a mad dash to find a suitable acquisition, with the initial types of goals the SPACs had for the “right” purchase going out the window. When a large amount of money chases a limited number of options, prices rise and investors increasingly take the risk of a haircut. Combine that with businesses getting blank checks to make something, and the conditions are established to separate people from their money.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top