Seeing a lot of headlines like this lately. Are SPACs really losing their fervor? If you read the papers and watch the news the answer is yes, but it is more complicated than that. First off, there is a huge difference between a pre-merger SPAC and a company that came public through a SPAC merger. For example, Draftkings and Nikola are not SPACs, they came public through a merger with a SPAC, but now they are operating companies with products and revenues and should be analyzed as such. SPACs are pools of cash looking for a merger. As such, there are no revenues and no company or industry to analyze. The difference is night and day, but many in the media don’t make the distinction, they merely lump them all together.  

Many of the companies that came public out of SPAC mergers trade like momentum stocks. Are they in a bubble? Maybe, maybe not, time will tell. SPACs for a time got correlated with momentum stocks so they also sold off over the past couple of weeks. One of the huge differences though is that SPACs have $10/share in trust. I did a quick screen in Bloomberg for SPACs (Blank Check Companies) and got 348, out of that 154 are trading at $10 or under. That doesn’t seem like a bubble to me. I read an article last week that was negative on SPACs, they quoted someone who bought a SPAC for $16/share and now it was $11/share. It ignores a point that you probably shouldn’t buy a pool of $10 in cash for $16. Instead you should buy it for $10 or near $10 and then sell it for $11.


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