There has been a lot of fuzz around SPACs the last couple of months. You could say it is the most hyped word in the private capital environment in 2020. But what is a SPAC? We will introduce to you the hyped vehicle and give some examples of SPACs launched this year.

SPAC stand for Special Purpose Acquisition Company or a blank-check company. It starts of as a company with no business operations and raises funds instead with an IPO (we all know what that is). The SPAC then uses that money to acquire a private company. The process for a SPAC IPO, as outlined above, is significantly shorter than the traditional IPO. Instead of half a year or longer, the entire process can be completed in about 15 weeks. 

A SPAC brings certain advantages such as already knowing the valuation, you don’t have to do a roadshow either, and you can cash out your existing investors. Plus, the whole process is a lot faster because you’re dealing with one party. Also, depending on the sponsor, you may get to incorporate people who are smart and good at running public companies into board seats. So it’s got some merger characteristics, which makes sense since there’s an acquisition involved. Finally, SPACs are also another way for companies to get late-stage growth capital. The downside is mainly fees which can be a quarter of the money raised and as a consequence 3 to 4 times higher than a traditional IPO. Also, you might not get long-term investors since the people who’ve invested in SPACs have different goals than normal investors. They might not know or even care about your company until they acquire it. And due diligence wise, there is less scrutiny of the existing business as it is not required.

2020 has seen 112 SPAC IPOs so far, a record year.

Now, let’s look at some interesting examples of this year. I listed the 5 best performing ones for you below:

1. DraftKings

With sports betting becoming possible a $40 billion business, Draftking is in the perfect position to benefit from the shift to online casinos. Went public via a SPAC on April 24th this year on the NASDAQ exchange.

2. Fisker

A SPAC amidst the EV revolution. Fisker was founded by Danish automotive designer Henrik Fisker. Fresh of its merger with Spartan Energy Acquisition, investors are now anticipating Fisker’s brand of EVs. It went public in October 2020 and tries to offer an alternative to Tesla in the EV market in the near future. Like many others it hasn’t started production yet.

3. Virgin Galactic

This one actually became public around a year ago. The transaction of the spaceflight company was expedited through the merger with the Social Capital Hedosophia SPAC. The company reported a loss of 34 cents a share after their third-quarter results.

4. Workhorse Group

Workhorse has a 10% stake in electric pickup truck company Lordstown Motors and for that reason it is listed here. Lordstown Motors is merging with the SPAC DiamondPeak.

5. Repay Holdings

Repay Holdings is a digital payment software provider. It has been on a acquisition spree and it is the synergies they are leveraging what makes it interesting to follow. Gross profit for the quarter increased 40% year-over-year to $27.1 million.

Fun fact the billionaire founder Pershing Square Capital Management tried to buy Airbnb through a SPAC.

Source: Nasdaq & The Verge

%d bloggers like this: