If you’ve never heard of a SPAC or Niccolo deMasi, you likely have many questions:
- What’s a SPAC?
- Who’s Niccolo deMasi?
- And why should you care?
Let’s dive in.
What is a SPAC?
SPAC stands for:
Special
Purpose
Acquisitions
Company
It’s basically a blank check corporation – at the time of formation there are no products or services. It’s just a shell that’s created by investors whose only purpose is to raise money via an IPO. Generally, a SPAC merges with an existing, private operational company.
For example, in 2019, the SPAC, Diamond Eagle Acquisition Corporation, was founded. It went public in December of that year, trading under the now defunct symbol, DEACU. Then, the SPAC merged with DraftKings and SBTech. Once the deal closed (April 2020), DraftKings (DKNG) went public with its IPO.
In short, SPACs have no physical operations. They don’t sell anything. A SPAC’s assets are usually only the money it’s raised via its own prospectus.
SPACs are normally created/sponsored by institutional investors. Wall Street tycoons and even CEOs have been known to jump aboard, forming SPACs of their own.
Now let’s get to Niccolo de Masi? And why is he so special?
Who is Niccolo deMasi?
He’s a CEO – and one of the most prolific and successful SPAC sponsors. He features in the upper echelon of SPAC success stories. In 2010, he became Glu Mobile’s CEO and later served as a chairman. With deMasi at the helm, investors did incredibly well.
When he took over as Glu Mobile CEO, shares were trading at around a dollar apiece – as of April 2021, Glu Mobile was bought for over $2 billion by interactive media giant, Electronic Arts (EA).
In 2019, deMasi became Resideo’s (REZI) Products & Solutions President. In just a couple short years, REZI investors have earned 24%.
DeMasi’s latest SPAC is dMY (DMYI.U). It’s an investor favorite, and has inspired investor confidence. For instance, dMY took Rush Street Interactive (RSI) public. On September 30, 2021, trading closed at $18.77 per share, meaning investors who’ve held on since the IPO have nearly doubled their returns. The average performance for a SPAC is right around a 50% return – DeMasi’s average return – if you go back through his entire corporate history – is more than 500%.
We’ve covered DMYI.U, but what about DMYI? So far, this has proven to be one of, if not THE, best SPACs de Masi has sponsored. In its most recent announcement, DMYI is combining with IonQ to create the world’s first publicly traded stock in the quantum computing industry which now trades under ticker symbol: IONQ.
The world’s best computer are quantum in nature, and IonQ is renowned for being the leader of the pack. The company has already created the first – and only – cloud-based quantum computer. The platform is available through:
Is A SPAC A Good Investment?
Some of the largest successes in the SPAC world, such as Nikola (NKLA) or Lordstown Motors (RIDE), have a common characteristic: they are in vogue. They may be pre-revenue or only generating meager revenue amounts but they could still offer enormous upside potential to SPAC investors.
Why?
Because when viewed through the perspective of a trader – not necessarily a long-term buy-and-hold investor, the companies can be trading at a discount to fair value in private markets when SPAC sponsors first get involved.
As a SPAC investor, don’t view the vehicle through the traditional lens of value investments. For instance, have you ever seen a SPAC that Warren Buffet just couldn’t wait to get his hands on?
It’s more apropos to look at a SPAC through the eyes of a growth investor – many of the best SPACs keep trending upward with no grapevine news at all once they get some momentum behind them. It can be hard to identify these SPACs, but there are things you can watch for, such as the tailwinds of the industry.
One of the greater trends in the market in recent times is that of clean energy. The hint of a “green investment” can spark enormous interest.
Top SPACs also feature in the electronic vehicle space – companies that make the vehicles, the parts, or the supplies for the parts are all seeing upward mobility.
Another recent popular industry is space exploration – thank you, Bezos and Musk. Cathie Wood’s ARK started an ETF regarding everything space, ARKX – while it hasn’t been a runaway success, it’s held its own. And ARKK isn’t doing too shabby.
But what about when a SPAC is no longer a SPAC? What then? Can it still be a worthy investment?
What is deSPACed? And Why Do Some Investors Lose Money?
DeSPACed – as weird as it looks – is just the term for a SPAC company that’s no longer merged with the SPAC –essentially it’s been uncoupled, or deSPACed.
So, what happens to an investor’s money once this uncoupling occurs?
Well, once the SPAC target is rerated, value often begins declining – often to the level that would account for sponsor promotions and expenses. Small, lesser-known deals, or ones that don’t have a lot of thought put into them, often get corrected severely.
Venture capitalists often report swarms of sponsors in bidding wars, pumping up enthusiasm for the hottest, most “on-point” targets – the buzz often boosts performance in the short-term, but watch out for healthy corrections down the road.
Anything “hot” enough to get a deal done in under a year or so could translate to it not being so hot the following year. Once the hype dies, so does the SPAC.
And that is why dMY is just that much more impressive than other SPACs – even while deSPACed companies in a broad sense tend to decline, deMasi’s companies tend to enjoy sustained success. One reason is the companies he is involved with often have MOATs.
Planet.com is a leader in mapping the earth. Genius Sports is only rivaled by Sport Radar, and IonQ stands alone at the top of the pack of its industry.
What Does the Future Hold for SPACs?
Successful SPACs can lead to windfalls of cash for sponsors because they can buy as much as 20% of outstanding shares for cheap when the company IPOs.
For individual investors, on the other hand, investing in SPACs hasn’t been quite as profitable. As part of an overall portfolio mix, it’s fun to get in on some fun hype and ride the waves – but you have to know when to get out of the water.
A lot of SPACs don’t perform as well as the market overall and more still will fall below initial public offering prices. Focusing on investments pre-SPAC could prove beneficial. It’s all a numbers game. But if you like hedging your bets, Niccolo deMasi appears to truly be the King of SPACS – the man with the Midas touch.
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