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A Story on SPACs and How Far They’ve Crashed and Burned

SPAC; Bad Investments?
Written by Andy

The most popular SPACs of 2022…and how far they’ve crashed and burned.

SPACs – Where are they now?

A special purpose acquisition company (SPAC) is basically a publicly traded company created for the express purpose of acquiring or merging with an existing company. So how does a SPAC differ from an IPO? In an IPO, a private company issues new shares and, with the help of brokers, sells them on a public exchange. In a SPAC transaction, the private company becomes publicly traded by merging with a listed shell company—the special-purpose acquisition company (SPAC).

It’s been a while since we’ve seen Chamath pumping SPACs, so where are they now? If you’ve invested in these you’ve probably become a bag-holder long-term investor waiting for the rebound… After a 60-90% drop you are now hoping for the shares in most of these stocks to bounce anywhere between 100 to 1,000% to the upside just to break even. Incredible. Even a famous portfolio manager like Bill Ackman was forced to liquidate Pershing Square’s SPAC, PSTH. Times are tough.

So what were the most popular SPACs from 2022 and how did they perform? We’ll get into it right now and then keep reading below to check out the list from 2021, it’s even more shocking.

Top Spacs of 2022

You’ve probably never heard about most of these names, and potentially for good reason since many on the list aren’t even profitable. Are SPACs just a means to transfer wealth from retail investors to execs and early investors? A classic pump’n’dump? It may seem that way.

Somehow, what’s even more shocking is the list from some of the most popular SPACs from 2021. These were all promised to be “the next best thing” and have ended up severely rotten leaving (retail) investors with a bad taste in their mouth. I’m not sure if SPACs will ever make a come-back to be honest, confidence has been lost.

Without further ado, the 2021 list of popular SPACs and where they are now. Unbelievable many of them require an 800% return to claw their way back to former glory. SPACS as a whole turned out to be terrible investments for 2021 and 2022.

SPAC Disasters

SPAC Boom Enriched Company Insiders with Billions in Profits

Prominent figures such as Tom Gores, the owner of the Detroit Pistons and head of investment firm Platinum Equity, Richard Branson, the British billionaire, and Trevor Milton, the founder of Nikola who is currently facing legal issues, emerged as notable beneficiaries in the SPAC landscape. The analysis conducted by The Wall Street Journal, which examined insider-trading disclosures related to over 200 companies involved in SPAC deals, revealed that these individuals, along with many others, acquired shares at low prices and subsequently sold them at higher values as they appreciated.

The companies that opted for the SPAC route to go public have collectively experienced a significant decline in market value as of end May 2023, amounting to over $100 billion. Distressingly, at least 12 of these companies have filed for bankruptcy, while more than 100 others are facing financial strain due to dwindling cash reserves. These challenges have been exacerbated by the impact of higher interest rates and escalating costs faced by these companie

Several executives contended during the boom that SPAC mergers offered a superior alternative for companies to go public compared to conventional initial public offerings. According to Michael Ohlrogge, a professor at New York University Law School who specializes in SPACs, it is evident why company executives favored this approach. Their preference stemmed not from its financial superiority but rather from the fact that it served their interests more effectively.

By scrutinizing Securities and Exchange Commission filings submitted until May 18, we conducted an examination of over 460 companies that engaged in SPAC transactions. Among these, the analysis identified 232 companies where insider sales took place. The focus of the study was on disclosures provided by investors who possess more than 10% ownership in a company, as well as corporate officers and directors.

Out of the 232 companies where insider sales were identified, insiders at 12 companies collectively sold shares amounting to a minimum of $500 million. The analysis conducted by The Journal reveals that insiders at approximately 80% of these 232 companies sold shares valued below $100 million. On average, insiders sold approximately $22 million worth of shares each.

Among the notable beneficiaries, Platinum Equity stood out with one of the largest paydays. The private-equity firm sold shares of four companies in which it had previously invested, and these companies subsequently went public through SPAC deals. The transactions resulted in proceeds of around $2.3 billion for Platinum Equity. Both Platinum Equity and Gores, another private-equity firm mentioned, declined to provide any comments on the matter.

Anytime an investment is complicated and hard to understand, and is layered with expenses for the sponsors of that investment, stay as far away as you can.

I thought insider trading was a crime. Or rather the founder of a company, and no longer an employee (e.g. in retirement) but still large shareholder, through his contacts with current management learns material non-publicly available information, and based on that information sells his shares reaping a substantial profit. Apparently such questionable practices have become a time honored way to galactic megawealth – live & learn. The question is why did the SEC allow these securities to be issued? They were obvious scams at the time, with very little value value behind their huge issuing valuations.

Similar question to the SEC about allowing the issuance of crypto currency which had absolutely NO value, the remainder of which is now sinking back into the mud from which it came, having caused huge losses to many innocents with, so far, no punishment.

About the author

Andy

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