Special Purpose Acquisition Companies or SPACs are owning 2021, so let’s discuss some of the best SPACs to buy.
In the past, many investors avoided SPACs, thinking they were too risky. The SPAC process — to go public through a reverse merger — presents a scenario of reduced regulator scrutiny compared to the traditional IPO. Because of this, many people consider SPACs to be the sneaky back door into the public markets.
However, 2020 has turned the reputation of SPACS on its head. Now, this once shady vehicle is being used by Big Tech to keep funds away from banks and hedge funds, which is in large part due to a horribly expensive IPO process.
Many large tech companies have felt like their loyal employees, some of who have been around since the garage days were robbed by the IPO process.
So, enter the SPAC. It is now good enough for Bill Ackman and Richard Branson, so it is good enough for us here at the Stock Dork. Below you can find a list of the best Special Purpose Acquisition Companies to check out that we are keeping on our watchlist.
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List Of The Best SPACs To Buy
Super SPAC ALERT: Pershing Square Tontine Holdings (PSTH)
This would not be an article on SPACs if we did not mention Bill Ackman’s investment vehicle. The blank check company raised $4 billion in its search for a “mature unicorn” or as Ackman himself put it: “We’re a unicorn looking to marry another unicorn.” Excuse us.
Airbnb reportedly turned down a bid from Ackman and Pershing Square Tontine.
This is the second time SPAC for Pershing Square. The company also served as co-sponsor of Justice Holdings, with Nicolas Berggruen and Martin Franklin. In April of 2012, Justice Holdings purchased from 3G Capital a 29% stake in Burger King Worldwide Holdings Inc. for $1.4 billion in cash and subsequently merged with Tim Hortons, to form Restaurant Brands International.
Pershing Square is still one of the largest shareholders for Restaurant Brands International.
This SPAC is interesting because of its structure. It is modeled after a 17th-century investment trust (a “tontine”) where if unitholders elect to redeem shares at the time of the merger, they will forgo receiving the final of their warrant distribution (2/9ths of a warrant).
The forfeited warrants are then returned for re-distribution to the remainder of the unitholders who did not redeem.
Furthermore, Ackman did not write in a founder’s fee. He is truly betting on himself here and he is doing all the media to make it happen. Do you really think he is not going to close a deal? PSTH is probably the SPAC to buy before a merger.
There hasn’t been much speculation about which company PSTH is taking public yet. However, a leader like Bill Ackman has the experience to choose something truly profitable.
Social Capital Hedosophia IV (IPOD)
IPOD is the fourth of Charmath Palihapitya’s growing series of SPACs and is currently trading at a respectable $11 per share. Given the company’s current value, this is a very affordable price and makes it one of the best SPACs to buy right now.
It is the next in line of three recently closed deals. These deals include IPOB which merged with Opendoor last year and IPOC which merged with Clover Health in early 2021.
Palihapitya has an excellent reputation and a real eye for success. He rose to notoriety by taking Virgin Galactic public. Anything Social Capital Hedosophia touches immediately generates hype among market investors.
IPOD offers a solid low-risk investment, especially if it follows the same trajectory as IPOB and IPOC. IPOD is expected to announce its target very shortly, so investors should buy in now if they want this stock in their portfolio before it merges.
For reference, IPOB’s merger announcement with Opendoor saw the stock price jump from $10 a share to almost $25 a share in the span of a single day. It is likely that this momentum will continue for IPOD once they announce their target acquisition.
Apollo Strategic Growth Capital (APSG)
Apollo Strategic Growth Capital, a very new SPAC, launched in November 2020. While we don’t know much about this SPAC’s future plans yet, we do know that they have a highly respected management team. The CEO has worked at Apollo Global Management for a decade and was a partner at Goldman Sachs prior to that. He also serves on the board of many different organizations.
Management is key when selecting SPACs to invest in, as we don’t know much about their plans for the future. You’ll need to be able to trust that a SPAC’s management team will be able to make sound decisions about what to do with the stock moving forward.
We’re excited to see what happens with this SPAC moving forward, as they have yet to announce a target.
Also Read: Profits Unlimited Review
Soaring Eagle Acquisition Corp. (SRNGU)
Soaring Eagle Acquisition Corp. has been behind some of the top SPACs of the last several years. For example, they were the company to take both DraftKings and Skillz public. Their team is led by Harry Sloan, Jeff Sagansky, and Eli Baker.
They’re looking to replicate this success with their seventh overall SPAC. Since Soaring Eagle has had multiple successful SPACs in the past, this definitely seems like a stock worth keeping a close eye on.
This SPAC is brand new, having only gone public on February 24th, 2021. This means they’re unlikely to announce a target for several months, at least. However, now could be a good time to get in on the ground floor of an exciting new company.
Because this SPAC is so new and we don’t know much about it yet, this SPAC is best suited to those with a higher risk tolerance and the patience to wait things out.
Best SPACs To Buy: List of SPACs That Announced A Merger
Churchill Capital IV (CCIV)
Investors have had their eyes on Churchill Capital IV for a long time now. This SPAC is run by expert financier Michael Klein, who has previously used SPACs to take Clarivate and MultiPlan public. With such a trusted reputation, people were excited to see what this new SPAC had in store.
Rumors had been swirling since the beginning of 2021 about a potential merger between Churchill Capital IV and Lucid Motors. The two companies finally confirmed the deal on February 22nd.
Lucid Motors is a growing electric vehicle company that focuses on the luxury market. They unveiled the prototype for their first car, the Lucid Air, in 2020. There’s huge demand for electric vehicles right now, as consumers are looking for more environmentally friendly forms of transportation to combat climate change.
When the rumors about the Lucid Motors acquisition started at the beginning of February, CCIV’s share price spiked. They were trading for over $58 at their highest point. However, once the deal was finalized, shares dropped back down again. Many investors felt that Lucid Motors was overvalued given the cost of the deal and could struggle in the future. Once the deal is complete, Lucid Motors could be valued at $24 billion.
However, that doesn’t necessarily mean you should sell off your CCIV stock yet. Shareholders will own a significant percentage of the company once the merger is finalized. While this stock might be volatile in the short term, it could have huge long term potential if Lucid’s vehicles are successful.
In addition to the Lucid Air, the company is exploring the possibility of creating an electric SUV in the next few years. Their vehicles are intended to compete against Tesla’s ultra-successful models.
Foley Trasimene Acquisition II Corp. (BFT)
Moving forward into 2021, BFT is one of the most exciting SPACs on the market. Bill Foley founded this SPAC in October to great fanfare. Foley has a vast amount of experience in mergers and acquisitions, so his name immediately sparked interest from investors.
In December, BFT announced that they would be merging with Paysafe, a payments processing platform. Paysafe’s leading investor is Blackstone, a world-renowned investment capital firm. Their connection with Blackstone alone has made them very attractive to investors.
Online payment processing platforms have become particularly important for our economy over the last few years. Many businesses have switched to taking payment exclusively online, and many consumers prefer this method as well. This means there’s huge potential for Paysafe as they break into a market that’s still growing.
BFT’s price spiked in December 2020 after the merger announcement. It has remained around $15 per share since then. Investing in this stock before the acquisition is finalized could be a smart portfolio move.
Gores Holdings VI (GHVI)
Billionaire investor Alec Gores has several SPACs on the market right now. What makes this SPAC stand out from the rest of Gores Holdings’ options is its upcoming merger with Matterport. Matterport is an incredibly innovative mobile app that can scan buildings to create 3D imagery.
Matterport has a huge variety of potential applications, from real estate to engineering to property insurance. In the past, you would need a specialized camera to create these detailed 3D images. However, Matterport’s technology makes it easy for anyone to do.
Matterport currently has a subscription model with over 250,000 customers around the world. Their subscriptions went up dramatically in 2020 even as the economy was struggling – a very promising sign for this company’s financial future.
GHVI expects to close the merger sometime in the second quarter of 2021. Now is a great time to invest in this SPAC before they finalize the merger.
Ceres Acquisition Corp. (CERAF)
Ceres Acquisition Corp. is a SPAC backed by noted record executive and entrepreneur Scooter Braun. They recently announced their plan to acquire Parallel, an American marijuana dispensary and distribution company.
Right now, Parallel has operations in Florida, Texas, Massachusetts, Nevada, and Pennsylvania. They run four distinct retail brands, each of which caters to a different customer profile.
The marijuana industry has been growing steadily around the world for the past several years. However, there has been renewed interest from investors in the US since the November 2020 election. Several new states legalized marijuana or loosened marijuana restrictions, expanding the potential market.
Ceres will likely finalize the transition later this year. This is a unique way to invest in the burgeoning marijuana industry in the United States.
What Is A SPAC?
A special purpose acquisition company (SPAC) is essentially a shell corporation whose sole purpose is to raise money to acquire one or more businesses or assets. Some people refer to these as SPAC stocks. Target companies are usually privately held.
This acquisition is accomplished through a reverse merger or a purchase agreement. Often, SPACs are called “blank check companies” because they are just that: funds from investors sitting in escrow until a company is acquired.
What Is a SPAC Warrant?
A Special Purpose Acquisition Company holds investor money in escrow. Those funds then buy the targeted company.
After the IPO, SPAC units often get split into warrants and common stock. This gives investors extra incentive as the warrants can also be traded in the open market.
To be frank, the warrants represent the bonus for investors who have put their money into a blind pool.
For example, as stated above, units will often contain ½ warrant, a ¼ warrant, or a full warrant. The warrant type will depend on the sponsor or the track record of who is leading/promoting the SPAC.
The SPAC warrants will be redeemable at certain trading price thresholds. The strike price for most warrants is $11.50 per whole warrant with adjustments for splits, etc. The warrants can be exercised only if the SPAC completes a deal before the specified date. This date usually occurs 30 days after the De-SPAC transaction.
The Lifecycle of a Special Purpose Acquisition Company
A special purpose acquisition company will go through the normal Initial Public Offering (IPO) registration process, which includes filing an S-1, communicating with SEC regulators, negotiating underwriting agreements along with the roadshow, pricing, and, finally, closing.
The IPO places funds in a trust account while the management team seeks a suitable takeover candidate.
The terms of the SPAC will vary from deal to deal, but management has a given time to find an acquisition and complete the deal (24-months is a standard timeframe).
Often, initial investors into SPAC’s will get what are called units which consist of one share, plus a fraction (usually 1/3rd to 1/9th) of a warrant.
When the units split (usually 60 days after their IPO), investors get shares and warrants.
If the time expires, the capital returns to investors. In many cases, Special Purpose Acquisition Companies will go public with a narrow or sector-specific focus in their search for an acquisition.
Following a successful acquisition, the SPAC will call a mandatory shareholder vote or tender offer. If the shareholders vote in the negatory, they can get their money back (SPACs are usually priced at $10 per share, but this can vary). If the shareholders, approve the deal, the combination will commence (called a “De-SPAC transaction”) and the target business will combine into the publicly traded company.
How Does a SPAC Work?
A Special Purpose Acquisition Company or SPAC is a public company created to acquire a private company. It works like this: a group of investors or a sponsor with a set of expertise raises money to acquire a non-listed company.
In short, a Special Purpose Acquisition Company sponsor and investor might have no idea what company they will be buying at the outset.
The money raised exists in escrow for a certain period of time usually 2 years.
The money in that account is distributed to either complete the acquisition for the private company on the agreement of a merger or when that money is returned to investors after time expires.
Once approved by investors, the new company will start to trade on a public exchange.
Pros of SPACs
One of the most important characteristics of a Special Purpose Acquisition Company is its flexibility. Even sponsorships shares can be adjusted from 20% to 0%.
In short, everything is negotiable. The negotiations on shares and warrants are open especially as the termination date approaches, and really these issues are all up for grabs because there are a lot of SPACs with different amounts of capital.
And here lies another bright spot of the SPAC, access to primary capital.
Lastly, timing is another key factor. A traditional IPO or a direct listing will take an average of 6-7 months to begin trading, while a SPAC will take around 2-3 months.
Cons of SPACs
The vetting of a public company is slow for a reason. Transparent business practices are desirable, but a SPAC is not.
It is a quick-moving public offering where the paperwork process has been simplified and transparency is low. In short, one of the benefits of the SPAC can also be what actually makes it risky.
Moreover, no SPAC is a sure thing. A recent study by Renaissance Capital found that 89 SPACs that had gone public since 2015 posted an average loss of 18.5%.
Traditional IPOs booked an average gain of 37.2% over that time.
Lastly, promoters can often get sweetheart deals when it comes to SPAC listings. The big names in the industry can ask for a lot of stock.
Similarly, many of the investors in SPACs are just looking for quick cash, meaning they don’t plan to buy the company long-term.
Best SPACs To Buy: Should You Buy SPACs?
The short answer is, it depends. Are you willing to commit trading capital to a stock where you do not clearly know what you are buying? For many investors, the mystery of SPACs is what makes them interesting.
Remember that you can always request your money back when a SPAC finally merges. For this reason, SPACs offer speculative investors huge potential upside with limited downside risk.
Best SPACs To Buy: Final Thoughts
SPACs are certainly the most popular “third door” on Wall Street right now, and, honestly, there are plenty of companies waiting in the wings. CB Insights currently counts 474 unicorn companies worth over $1,535B. Some of those names have already been on the tip of Wall Street’s tongue like JUUL, DoorDash, SpaceX, and Airbnb, just to name a few. In short, SPAC Season is just beginning.
Did we miss any SPACS that you all like? Let us know in the comments.