SPAC mergers are not a new thing. These “blank-check” companies, as they are often called, have been around for decades.
Seen as a roundabout way for a firm to take its business public, the special-purpose acquisition company had a reputation in the past for being something of a risk.
But all that’s changed the last couple years, as a longline of big tech companies recognized the value of this once “shady” investment vehicle. Indeed, as the cost of traditional IPO floats skyrocketed, the SPAC merger had its biggest year on record in 2020, accounting for $82 billion of inward investment.
SPAC Vs IPO Returns
Shareholders who purchase stock in a SPAC have plenty of optionality in how they manage their investment – which can, at times, make the process appear relatively risk-free.
Investors who put money into a SPAC before it merges with its target business acquire both stock and warrants, giving the holder the right to buy more shares in the company at a predetermined strike price.
Their initial investment is also covered since the cash used to purchase the stock is held in trust, which can be redeemed if investors don’t like the look of the firm which the shell company eventually buys.
While SPAC IPOs might appear safe, in reality no investment in entirely without its risks. SPAC mergers lack the normal business transparency that most Wall Street stock floats are subject to, and recent research by Renaissance Capital found that, compared to regular IPOs which made an average gain of 37% since 2015, SPAC deals actually lost 19% over the same time.
So what makes a SPAC merger successful?
A lot of it comes down to the personnel managing the SPAC, and the track record that the team has with their previous acquisitions. With that in mind, we’ll take a look here at three top SPAC sponsors which could prove profitable for investors in the future.
KKR SPAC Raises $1.2 Billion
Not only is Kohlberg Kravis and Roberts one of the oldest private equity firms on Wall Street, it also controls one of the largest investment portfolios in the world, managing an estimated 349 billion dollar’s worth of assets for its clients.
The company is a specialist in the alternative investment space, focusing on real estate, venture capital and hedge fund assets rather than conventional financial instruments such as stocks and bonds, etc.
The announcement of its recent foray into the SPAC world is whetting the appetites of investors because the company’s CEO will be none other than Glenn Murphy, the chair of highly rated athletic apparel company Lululemon.
The SPAC raised a total of $1.2 billion in March 2021, selling 120 million investment units at $10.00 a piece, giving stockholders one Class A share and 0.25 warrants per unit, with each warrant entitling owners to another share at $11.50 sometime in the future.
KKR Acquisition Holdings I Corp. (KAHC.U) executives suggested in the SPAC’s S-1 filing that while the company leaves open the door to invest in any kind of industry, it expects to target businesses in the consumer and retail industries. This isn’t surprising given Murphy’s background with FIS Holdings, which also focused on companies in the consumer sector such as Whole Foods Market and Aimbridge Hospitality.
KAHC.U shares currently trade at $9.95, already 0.5% below its IPO price. Its highest intra-day value was $10.18, already making the SPAC attractively cheap for interested investors.
dMY: Quantum Computing Goes Public
One of the most successful SPAC outfits in recent times has been the dMY Technology Group, Inc., Niccolo de Masi’s “blank-check“ umbrella organization that struck gold taking online gambling company Rush Street Interactive public late last year.
Niccolo’s latest IPO is dMY Technology Group, Inc. III (DMYI), a special-purpose acquisition company that hopes to merge with IonQ, a quantum computing company based in College Park, Maryland.
If the deal goes through, IonQ will become the world’s first publicly traded quantum computing business on the New York Stock Exchange – an accolade that saw DMYI change hands for as much as $14.60 back in March when the merger was announced.
IonQ is a leader in what will surely become a growth industry in the near-future, and the company has so far partnered with giants such as Microsoft (MSFT) and Amazon (AMZN) in bringing hardware to their respective cloud service offerings.
It also has backing and funding from SoftBank Investment Advisors, which should ensure the firm has access to cash as its ambitions expand. Shares in DMYI are selling at the cash in trust level of $10, giving investors at the present time plenty of upside potential.
Under its umbrella, dMY Technology Group also featured DMYQ, a SPAC that aims to bring Planet.com public. Investors who look under the hood will find a company that compares well to much more high profile cloud-based data firms, such as Palantir (PLTR).
Simon Property SPAC To Target Video Surveillance?
The famous Simon Property Group launched its own SPAC in February 2021, raising $345 million in the process, and generating lots of speculation on where the world’s largest retail REIT was eventually going to put its money.
While there’s been no official confirmation as yet, rumors indicate that Simon Property Group Acquisition Holdings, Inc. Units (SPGS.U) is eyeing up Kastle Systems, a security software company that provides video surveillance, access control and other visitor management tools for the commercial property sector.
As the sponsor of the SPAC, the main beneficiary of a successful merger will be the Simon Property Group itself, since the management team behind a blank-check company takes 20% of all shares available.
With this special-purpose acquisition company also trading at sub-IPO levels, the stock might make for an excellent opportunity to capitalize on SPG’s undoubted winning business formula, without having to buy into its principal REIT-related stock. The bet will be a shot to nothing, again promising big rewards if it executes as planned.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.