These special purpose acquisition companies are making waves in a big way.
Feb. 4, 2021
The IPO market is red-hot right now. Plenty of big-name companies have decided to come public now, and many of them are looking at some non-traditional ways to make their shares available to ordinary investors. Although traditional IPOs are still plentiful, you’re also seeing many companies choose direct listings with stock exchanges.
Another popular alternative that has taken the investing world by storm involves special purpose acquisition companies, or SPACs for short. SPACs are publicly traded stocks in their own right, but their only mission is to find a suitable privately held company to merge with. By doing so, the privately held business gets to have its shares publicly traded, and early SPAC investors often get a nice payday as well as the opportunity to get in on the ground floor.
With hundreds of SPACs in the market, it’s hard to know which ones to follow. Below, though, are three that investors really can’t afford to ignore. The future of these three SPACs could well determine how health of the entire business going forward.
1. Churchill Capital IV
Among SPACs, Churchill Capital IV (NYSE:CCIV) has gotten the most attention by far lately. Churchill offered shares back in September 2020, and as its name suggests, it was the fourth offering from SPAC specialist Michael Klein. It’s the largest Churchill SPAC yet, having raised $1.8 billion.
Rumors have swirled for quite a while about Churchill Capital IV potentially merging with electric vehicle maker Lucid Motors. Deliveries of the Lucid Air luxury sedan are set to begin this spring, and with a price tag starting just under $70,000 and a maximum projected range of more than 500 miles, many auto aficionados are highly excited about the California-based company’s prospects.
What’s amazing, though, is that Churchill Capital IV shares have more than tripled without any firm agreement with Lucid in place. That’s a ton of speculation, and shareholders stand to lose a lot of a deal with Lucid doesn’t materialize. Nevertheless, the amount people are paying up for a SPAC that seems to have the inside lane on a possible EV merger shows just how much activity there is in the electric vehicle space right now.
2. Pershing Square Tontine Holdings
The largest SPAC ever offered came from Bill Ackman’s hedge fund in September 2020, and Pershing Square Tontine Holdings (NYSE:PSTH) has been a big hit. The SPAC broke many of the conventions that the industry set, including coming public with a stock price of $20 per share rather than $10. All told, Pershing Square Tontine raised $4 billion to put to work toward finding an acquisition candidate.
Pershing Square Tontine hasn’t yet found a merger candidate, and that’s caused some SPAC investors to get anxious about the price increase its shares have experienced lately. There’ve been some rumors about possible targets, most notably the privately held fintech company Stripe. Yet there’ve also been some who’ve attempted to debunk that idea, and thus far, there haven’t been any announcements.
Pershing Square Tontine is likely to find a merger target, and when it does, it’ll be big news. But if Ackman’s SPAC somehow goes the 24-month period without finding a partner, that could be a huge setback for the SPAC industry overall.
3. Social Capital Hedosophia Holdings V
Finally, an article on SPACs wouldn’t be complete without at least one of the offerings from pioneering tech venture capitalist Chamath Palihapitiya. The Social Capital founder’s Social Capital Hedosophia Holdings V (NYSE:IPOE) is just one of six SPACs that he has offered, and three successful combinations with the likes of Virgin Galactic Holdings (NYSE:SPCE), Opendoor Technologies (NASDAQ:OPEN), and Clover Health (NASDAQ:CLOV) speak for themselves.
SCHH V has entered into an agreement to merge with Social Finance, the company behind the popular SoFi financial app. With financial services including loans, banking, and investments, SoFi is aiming to revolutionize the financial industry. SCHH V investors are excited about the potential combination, as the SPAC price has doubled since the announcement. Yet many see even better times ahead for SoFi, and that could keep shares moving higher long after the SPAC merger is complete.
Be smart with SPACs
Not every special purpose acquisition company will be successful. Some combinations aren’t as lucrative as others, and some SPACs might not even find merger candidates at all.
Yet with so many interesting privately held companies looking to come public, you can expect the SPAC industry to be full of excitement for the foreseeable future. Keep your eyes on these three SPACs in particular, as what happens with them could well define the course of future activity in the area for months or even years to come.
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