Unlock the SPAC power of your portfolio with 5 solid buys
2020 was a year where we heard a LOT about what some have dubbed “blank check companies.” But more sophisticated investors refer to these potential unicorns as “Special Purpose Acquisition Companies” or SPACs from here on out in this power playbook.
With the IPO market booming and investors looking for bigger and better returns, SPACs are revving up their engines in hot pursuit of their merger targets. And every single day, a new one gets announced.
And I’m betting the only reason you aren’t already in on this profit opportunity is because you don’t really “get it.” After you finish this playbook, that won’t be a problem anymore.
So, What Is An SPAC?
One of the reasons that SPACs are called “blank check companies” is because they don’t really have any commercial operations. They exist for one reason and one reason only – to raise capital through an initial public offering (IPO) so that they can acquire an existing company.
As you can imagine, that makes SPACs pretty speculative investments. After all, if you’re investing in a company before acquisition, what you’re really doing is investing in a whole group of people and then trusting them to make the right decisions that will ultimately pay off.
When an SPAC has their IPO, they have no existing business operations. They don’t even have any stated targets for their acquisitions. And they have just two years to get the acquisition completed or they’ll have to return those funds to their investors.
These blank check companies aren’t anything new – they’ve been around for decades. But they’ve never been as popular as they are today. After all, investors are looking for somewhere to put their money for tantalizing returns in a world full of rock-bottom interest rates.
According to CNBC, there were 194 traditional IPO deals raised $67 billion, the best year since 2014, according to Renaissance Capital. But it was an even better year for SPACs, which raised just about the same amount: 200 SPACs raised about $64 billion.
And for 2021, the outlook is at least as good – if not a whole lot better…
If you want 2021 to offer you some seriously powerful plays for your portfolio, here are the Top 5 SPACs you should have your eye on…
But, before you get over there and start checking it out, here are the top three criteria we’re looking at to decide if a SPAC is a smart choice:
- The Management Team
- Compensation & Incentives and
- Their Acquisition Strategy
Those are the key things you’ll want to keep in mind too, as new opportunities pop up throughout the year!
Reinvent Technology Partners | (RTP)
If you’re searching for a target, this is a great place to start. Reinvent Technology Partners is led by two technology powerhouses – Zynga Inc. founder Mark Pincus and the founder of LinkedIn, Redi Hoffman. And, as you might imagine with a background like that, the duo is looking to target the technology sector or subsector, to include consumer internet, online marketplaces, ecommerce, payments, gaming, artificial intelligence, SaaS, digital healthcare, autonomous vehicles, and transportation, among others.
They first met back in 2002 and have partnered together on a lot of high-profile deals. Their most notable one? Leading the seed round in Friendster and being early investors in Facebook.
Their previous SPAC, Reinvent Technology Partners (RTP.U; +8% from $10 offer price), recently completed a $600 million IPO in September.
Morgan Stanley is the sole bookrunner on the deal.
Tortoise Acquisition Corp. II | (SNPR)
Sustainability has been a buzzword for a while now. But under a Biden administration, it’s likely to take on even greater importance – and impact on the markets. So, if sustainability is an important aspect when it comes to your investments, you might want to keep your eye on Tortoise Acquisitions Corp. II.
As the name implies, this is the successor to Tortoise Acquisitions Corp. I. If that sounds kind of familiar to you, that’s because it was the engine that led to the very successful Hyliion merger. And there’s not much more exciting than jumping in with an SPAC that has a strong management team that’s already aced this already in the past. But that’s not the only thing sexy about this – there’s also a solid expertise in the energy sector that will take this to some pretty exciting heights.
“We intend to focus our search for a target business in the broad energy transition or sustainability arena targeting industries that require innovative solutions to decarbonize in order to meet critical emission reduction objectives.”
And this is great news because inflows into ESG-focused funds quadrupled from 2018 to over $20 billion in 2019, and Bank of America Merrill Lynch predicts that inflows into ESG strategies over the next few decades could rival the size of the S&P 500 today.
Social Capital Hedosophia Holdings VI | (IPOF)
This SPAC is doing so well that we already saw them start 2021 with a ton of bang – even though they still don’t have a target yet!
Chamath Palihapitiya of Social Capital Hedosophia has already made quite the name for himself in the world of SPACs by bringing Virgin Galactic Holdings Inc public using his IPOA vehicle.
However, you need to know that you’re going to wind up paying for his past successes. This SPAC has already seen a whole lot of attention this year. On January 7th, it saw prices soar 15% in just one day worth of trading.
But if management is what matters most to you, this is a great SPAC to keep on your radar in 2021.
Lefteris Acquisition Corp | (LFTR)
If you’re looking for a SPAC that’s targeting the fintech sector, this might be right up your alley.
The company is led by Chairman Mark Casady, co-founder of fintech-focused venture firm Vestigo Ventures, and CEO and Director Karl Roessner, former CEO of E*TRADE. They have their eyes on the financial technology sector, specifically businesses with enterprise values between $600 million and $1.3 billion.
“In working on our portfolio I observed that many larger companies — typically $50 million or more in revenues need capital options. An SPAC is a way to provide capital in a different way than a private equity investor would do, so its a choice to be made by the company on how it wants to control its destiny,” Casady explained.
They also have an eye on creating opportunities that don’t already exist.
“We created Lefteris because we believe there is a need for a different form of capital and a different brand of leader to help companies over $500 million in market cap to develop and grow their businesses.”
Pershing Square Tontine Holdings | (PSTH)
Pershing Square Tontine Holdings is another SPAC that has seen some strange price action earlier this month – despite the fact that they, too, are still seeking a target.
This SPAC is brought to you by Bill Ackman, one of the most renowned names in the investing game. This time, he’s putting his reputation on the line.
And it’s MASSIVE!
“Raising $4 billion for Tontine Holdings means that this is the largest SPAC ever created. Interestingly, Ackman has chosen to eliminate compensation for management entirely and instead has pledged to invest at least $1 billion in the company via his hedge fund once a deal is completed. This means that the management teams’ interests are very aligned with shareholders, which is a very good thing.”
Many investors are growing suspicious that a target may be in sight. Some are predicting it will be a big name like Stripe. But others are expecting to see a much more mundane name.
Remember – that’s how Ackman makes money. He buys quality companies that face temporary and fixable problems and sells them when they’re near pristine and loved by the markets.
No matter how you look at it, we could be in for some surprises on this one.
Sadly, though, even a blank check company might not be enough to carry you through a Second Wave
Nobody was out there predicting the arrival of the pandemic. But still it came.
Now, I don’t mean to mislead you – this Second Wave I’m referring to doesn’t have anything to do with COVID.
In fact, when it hits, it could hit harder than the pandemic did.
It’s all about the stock market, what’s been happening in Washington and five of America’s favorite tech favorites that could fall, and fall HARD.
Suffice it to say it will have massive implications. And whether you realize it or not, your future is right in its crosshairs.
My little stock picks will look like a distant memory if this goes down. Which is good, because this could make everything go up in smoke anyway.
There’s a lot to go over here in a simple report conclusion, so I’m going to send you a copy of the Second Wave expose and survival guide. In fact, it’s probably already in your inbox right now. If not, expect it to show up shortly.
Whatever you do, take a minute to check it out. It could spell the difference between surviving or being swept away by the Second Wave.