When we started this site only a few months ago the SPAC IPO market was a backwater. Since then the market has changed dramatically and so must our approach.
At the beginning there were only a few deals to track and we had major success just trading the few names and associated warrants. It was a sequential progression of major wins starting with Virgin Galactic (SPCE) then DraftKings (DKNG) and then Nikola (NKLA).
In April of this year we wrote about buying GRAF warrants at just $0.18 each in what became Velodyne Lidar (VLDR). Now they are changing hands at $3.72. We are long gone but the ability to multiply your money then was too easy for it to last.
A few things have happened:
- The sheer volume of new SPACs has swamped the market. You can't buy them all or even all the warrants. You wouldn't want to anyway - see next point.
- There is more SPAC capital chasing fewer high quality private companies. Sponsors will get creative and start thinking about it more like buying minority stakes in big companies but risk adjusted returns are going to go down. We've already started to see this.
- Investors, even of the retail/Robinhood ilk, have started to notice that everything is not all up and to the right. Nikola helped to start the trend but they will not be the last to paint a too-rosy picture of the future.
- Now many newsletters like Whitney Tilson and his gang at Empire Research have launched a dedicated SPAC service touting buying the "pre-combination" SPAC plays. (They are charging thousands for it BTW.) We can do better.
We will now be covering all new business combinations as we would a regular-way IPO (like we have done for over ten years over at IPO Candy.)
Our real work begins when a business combination gets announced and we can size up the potential new public company and decide whether or not it belongs in our portfolio.
We'll publish our notes on individual companies and sectors where we see a critical mass of new companies like electric vehicles or consumer products.
The kind of companies we are more drawn to have real businesses rather than being a slick deck of marketing material. A name like Vertiv Holdings (VRT) comes to mind which we have owned since late in 2019. It hasn't been a DraftKings but $10 to $18 with some dips to buy along the way is the type of name we appreciate.
There will still be opportunities to own some SPAC names pre-combination because of the sponsors and track records. For example we have repeatedly made excellent risk-adjusted returns in the Social Capital Hedosophia issues when buying them the first day as close to $10 (trust value) as possible. Many have gone to $12-13 just in anticipation of a deal.
We will also be mindful of opportunities in the long-term warrants that trade alongside pre-combination SPACs and their post-combination companies.
So what should members expect to get here for the rest of this year?
- You will receive an update anytime we post a new SPAC business combination - at least with slides and also the transcript if available. (free)
- At least once a week we will send out a summary of activity here that includes performance updates, new names we are tracking and new coverage. (also free)
- Company notes and sector updates looking at fundamentals and valuation. (paid)
- Access to the SPACvest portfolio of investments we decide to make in this space along with updates. (paid)
- An option to receive notifications via SMS. (paid)
- We are building a set of spreadsheets for tracking this new universe of companies by completed, announced and new SPACs. Our overlay includes context like sectors, positioning and valuation. (paid)
As this market evolves we will adjust as needed while keeping our eyes on the prize of finding the best investment opportunities.
Given the nature of how we are approaching this market now it seemed fitting to change our name and website to SPACvest.
We encourage your questions, comments and feedback.
