SPAC: How Long Will This “Money for Nothing” Trend Last?
The timing of the recent surge in Special Purpose Acquisition Company offering speaks volumes
by Bob Stokes
Updated: January 05, 2021
In case you're unfamiliar with the acronym SPAC, it stands for Special Purpose Acquisition Company, and as National Public Radio (Dec. 29) labeled it:
The SPAC has become the hottest trend in Wall Street.
Elliott Wave Financial Forecast subscribers have been aware of SPACS for many months.
The August 2019 issue showed this chart and provided a definition of a SPAC:
A SPAC is a blind pool or "blank check" offering in which investors hand over their money without knowing what it will be used for. Generally, the management team that is entrusted with the funds has 24 months to identify and complete an acquisition... The chart shows that the volume of SPAC offerings has been building since 2010. In just the first seven months of 2019, close to $14 billion has been raised, a one-year record.
So, as you can tell, this process is a reversal from how a traditional IPO works -- whereby a company announces it wants to go public, provides necessary details and then investors buy shares. With a SPAC, investors pool their money first without knowing what they're investing in. The paperwork that goes with a traditional initial public offering is avoided.
The Elliott Wave Financial Forecast provided more SPAC updates in June, September and October 2020.
Indeed, the October issue said:
The preponderance of Special Purpose Acquisition Companies, a.k.a. "Blank Check Offerings," places the current IPO craze head and shoulders above all prior IPO binges in terms of cavalier indifference to the undesignated use for the capital being raised.
How big is the SPAC craze?
Returning to that Dec. 29 National Public Radio article:
Shaquille O'Neal's got a SPAC. Former House Speaker Paul Ryan's got a SPAC. Famed investor Bill Ackman launched a $4 billion SPAC. And a 25-year-old became the youngest self-made billionaire thanks to -- you guessed it -- a SPAC.
The reason for calling attention to the enormous popularity of SPACs is that it is a major sign of historic financial confidence.
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