Hello Co/Report subscribers, we hope you have a SPACtacular Sunday!
This week, we are discussing all things SPACs. Also known as blank-check companies, they’ve become popular—very popular—over the last 12 months. And like all asset classes that become popular, there is both opportunity and risk, as trends often tend to get carried too far. In this issue, we’ll explore what SPACs are, as well as some of the risks and opportunities.
Given some of the recent weakness in SPAC prices, we are also sending Premium Members a specific SPAC name that might be worth exploring as a potential investment for those interested in the space.
But first, time for some SPAC trivia…
What has been the top performing SPAC sector?
What was history’s biggest quarter for SPAC IPOs?
Which hedge fund has the most SPAC exposure?
What Is A SPAC? - Everything SPAC And How It Works
The big picture SPAC overview:
SPACs raise money and IPO with the purpose of going out and making an acquisition, usually within 24 months.
If a deal isn’t made in the stated timeframe, the SPAC returns the money to investors. This amount returned is usually fairly close to the IPO price, with any difference coming from a decrease due to operating expenses, and an increase from the interest earned on the capital that was raised (which is kept in a trust until a deal is made).
A benefit of SPACs is that outside investors get to invest alongside the management team, which are often people one couldn’t normally have the opportunity to invest with.
A downside of that benefit is that those management teams usually get a big stake in the company—usually 20%—when they find a deal without having to put up much capital. Many are worth paying that price to invest alongside with, and many are not. So paying attention to the people sponsoring a SPAC is extremely important.
For more of an overview, watch the short video below.
Lunch at the Club Presentation Update
At our last Lunch at the Club event, held on March 17th, Christian Olesen presented the case that Cambria Automobiles plc—with a share price of £0.65 per share—was significantly undervalued. And apparently the management team at Cambria thinks so as well, as this past week they announced that they were exploring the possible acquisition of the shares of the company not already owned by them at a price of £0.80 in cash per Cambria share.
Mike Pruitt, Founder of Co/Investor Club, reached out to Christian for comment. And as Christian wrote in the quote below, he seems to think that a much higher price is warranted for Cambria shares:
“I think a price of 80p is substantially below the fair value of the stock, not least considering the real estate owned by the company, the company's earnings, and the attractive franchise portfolio. Interestingly, since the management team already owns approx. 43% of the shares in the company, I believe they could acquire the remaining 57% without putting up any money whatsoever, assuming they only had to pay 80p per share. This is because the company's real estate portfolio could be used as collateral for the debt needed to finance the entire buy-out. Given the high level of shareholder agreement needed under UK law, I am pretty confident there are not enough shareholders who will support a buy-out at the low price of 80p.”
So grab your popcorn, as this one could get interesting, and we’ll provide more updates as they become available. Shares of Cambria closed this past week at £0.75 per share.
The SPAC Outlook: Blank Check or Blind Faith?
Before the 2020 SPAC boom, SPACs had begun to get more and more attention, such as in the video below from June 2019.
SPAC Success Stories
Nikola and DraftKings Stock Started as ‘SPACs.’ What Investors Need to Know. (June 2020)
Joe Moglia on his SPAC merging with OppFi in $800 million deal
And SPAC Risks
U.S. regulator opens inquiry into Wall Street's blank check IPO frenzy
SPAC Track is a platform that helps SPAC investors and followers easily keep track of individual SPACs and the overall SPAC market. Their mission is to provide high quality SPAC data to retail investors and to inform all those who are interested in this rapidly-growing, exciting world of SPACs.
More SPAC News
Why Investor Barry Sternlicht is committed to SPAC deal making
Main Street Investors Are Now Able to Co-Found Their Own SPAC
SPAC Investors Are Ignoring This Hidden Danger -- and It Could Cost Them a Boatload of Money
Red-Hot SPACs Tumble on Reports SEC Opening Inquiry Into Frenzy
Let’s Talk About SPACs
Odd Lots Podcast: Why Blank Check Companies Are The Hottest Thing This Year (Sept 2020)
Money Talks: SPAC to the future
Odd Lots Podcast: Cowen’s Co-President on Why SPACs Are Having Such a Moment (Jan 2021)
Village Global's Venture Stories Podcast: Everything You Need To Know About SPACs (Aug 2020)
a16z Live Podcast: SPACs, Bootstrapping and Funding, Firing Execs, and More on One on One with A and Z #5 [The SPAC discussion starts at the 5:40 mark.]
ETF Prime Podcast: The SPAC Tsunami
In Case you Missed it…
OppFi Reports Fourth Quarter and Full Year 2020 Financial Highlights
Optimus HealthCare Services Completes Acquisition of AdhereRx, d/b/a PainScript
IMAC Holdings Announces Pricing of its Public Offering of Common Stock
The Special Equities Group (SEG) and Dawson James Securities, Inc. Form Strategic Partnership
If you have not already upgraded your membership…
Avenel Financial Group, a merchant banking and advisory firm located in Charlotte, NC launched a new business venture called the Co/Investor Club. The Co/Investor Club is a community of value-oriented investors that collaborate on investment opportunities and ideas. You are receiving this newsletter because you are a Free or Premium Member of the Co/Investor Club!
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SPAC Trivia Answers
Cars and trucks, especially electric vehicles. Automotive-focused SPACs are the top performing sector over the past year. Average EV SPACs have more than doubled.
Q4, 2020 was the biggest by far both in terms of the number of SPAC IPOs and in terms of their proceeds.
Izzy Englander’s Millennium. He has over $2.8 billion in SPACs, a record number of dollars in this strategy.