The Rise and Fall of SPACs and the SPAC King?

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The Pied Piper of SPACs

Chamath Palihapitiya says that the investment tool lets ordinary people get rich off startups. It may be hype—but hype can be its own economic engine. - The New Yorker (June 7, 2021)

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What is a SPAC?

The SPAC, or special purpose acquisition corporation, is a type of company that can help companies raise money from investors by selling shares of stock to the public. These companies have a limited life span (10 years), so once the business is complete, the company dissolves and the shareholders receive their returns. However, because the company has a limited life span, it is a good way for a company to raise money and take advantage of the current investor environment.

SPACS allows a company to go public quickly, without the lengthy process of an IPO. It also saves the company time and money, as it doesn't have to spend months filing for an IPO.

SPACS might not be a prudent investment

SPACS are for those who can stomach risk and love the idea of unicorn hunting. Investing in SPACs comes with risk—the hype is enticing and full of volatility. The SPAC King himself has hit some stormy waters in 2022.

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Clover Health

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Open Door

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Bloomberg reported in April 2022:

(Bloomberg) -- The SPAC world’s rebound didn’t last long. After posting small gains throughout late winter, stocks of companies bought by blank-check firms plunged once again in April, including some created by the “SPAC King” himself, Chamath Palihapitiya.

and…

There are more than 700 active SPACs either looking for deals or on pace to complete them with a combined $188 billion in trust, according to data from SPAC Research. The market remains oversaturated with the initial buzz having worn off, said Anderson Lafontant, a senior adviser at Miracle Mile Advisors.

Bill Gates SPAC Butterfly Network sucks.

Just like his Windows Operating System WindowsMe, his SPAC has not performed well and pretty much sucks.

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Bill Ackman and PSTH

And let us not forget the great hedge fund prognosticator Bill Ackman. Of course, he got in on the SPAC market with his Pershing Square Tontine Holdings (PSTH).

Seeking Alpha writes:

Pershing Square Tontine Holdings is Bill Ackman's $4 billion SPAC. A lot has changed since Ackman initially IPO'd the SPAC in mid 2020. As an investment vehicle, PSTH has brought investors through the full cycle of investing emotions. Once the darling of SPAC-land, Bill Ackman's Pershing Square Tontine Holdings has fallen on some very hard times. The chart says it all (December 28, 2021)":
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As of last week this is where we are with PTSH.

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Conclusion

As John Bogle reminds us:

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Short seller Carson Block [calls…] “the SPAC trend the 'Great 2020 Money Grab in a paper for his firm, Muddy Waters Research, in which he writes that 'a business model that incentivizes promoters to do something anything with other people's money is bound to lead to significant value destruction on occasion.” (Source)