Bonfire of the SPACs (S.P.A.C.-D.O.A.-R.I.P.)

 

We here in the blogosphere are constantly on the hunt for niche subjects to monopolize the edification of the masses about. It’s what we do. It makes us feel important and gains us a patina of uniqueness over and above the lamestream media.(1) Of late this blog’s search has lit upon the subject of SPACs, or Special Purpose Acquisition Companies. Although a brief reiteration of what said SPACs are might be in order at this point, it is more to my point to wax poetic about how much fun it would have been to be the informational hub of everything about them. What joy I would have taken in defining and refining the different classes and styles of SPACs and venturing guesses about the viability of each. My writing days would be mapped out for months in advance as I bloviate endlessly, a guru of the financial cutting edge like all of the crypto currency gurus.

Sadly, that’s exactly what it would be like. Just as crypto currencies are money issued by no one, SPACs are collections of money given in blind trust to someone who promises to make you rich by finding a going business to marry it into. The SPAC is then drained of all funds and you and the others in this collective now own a business, arguably still under the control of the person who promised to make you rich. This person then magically lists the business on the stock exchange and cashes you all out for oodles more money, as investors seek shares of your fine viable enterprise.

To date, at least part of the process has worked exactly once:

Grab Holdings, the largest ride-hailing and food delivery firm in Southeast Asia, clinched a merger on Tuesday with special-purpose acquisition company Altimeter Growth Corp securing a valuation of nearly $40 billion and paving the way for a coveted U.S. listing. The merger, the biggest blank-check company deal ever, underscores the frenzy on Wall Street as shell firms have raised $99 billion in the United States so far this year after a record $83 billion in 2020.

Cue stirring theme music and condor swooping animation. Opportunity has been sought and found! Just what the world needs… a combination of Grub Hub and Uber… in Southeast Asia, no less. Not exactly cold fusion, is it? Especially when one considers that the non-knock-off versions of both concepts have done nothing but bleed tranches and tranches of red ink here in the first world. I’m sure it will do just zingo business in a part of the world where they eat cats and drive bicycles. (2) Can’t wait for the NASDAQ listing. Oh, the vast promise of SPAC Land has the dreamers dreaming…

Frith expects more early-stage battery startups to go public through special-purpose acquisition companies, a trend currently sweeping through Wall Street, in part because management teams get the latitude to make future projections, unlike with conventional initial public offerings. If the secrecy in the battery industry remains as tight as it is now, you can expect more Scorpion Capital-style short seller attacks.

The above named Mr. Frith was deemed a bunko artist by a bunch of short sellers and is now envisioning MIGHTY SPAC as the savior for his venture. This is in opposition to the much dreaded path of actual financial transparency. Perish the freaking thought. Better to hide in a coop with birds of a feather.

And just as the story wends further, adding with complexity like a fine White Zinfandel, the spiked punch bowl is suddenly pulled. The Golden Age of SPACs is over…

SPAC mania has come to a screeching halt. Just last month, special purpose acquisition companies celebrated a head-turning milestone by breaking their 2020 issuance record in just three-month’s time. After more than 100 new deals in March alone, issuance is nearly at a standstill with just 10 SPACs in April, according to data from SPAC Research.

Kinda leaves the poor SPAC Research specialty prognosticator without a gun to holster or a bug to net. When, one wonders, did the whiz-bang consultancy have a chance to whip up a SPAC Research ™ wing in the first place? How much specialty experience can they have? From whence doth they cull their empirical data and seasoned insight? Lucky for those folks unemployment has been extended. Or you can accept being folded back into the Etherium Crypto Research pool at a junior level. Your call.

There’s trouble in SPAC land. (3) The SEC is mulling a new definition on the warrants given to SPAC insiders, a move that could weigh on the bottom line of these blank-check IPO mills.            

While SEC mullings have never stopped those truly inspired to blow money like drunken sailors, it ain’t good news. Bad mojo lurks in the fine print of the offers to those whose money is better than that of others. These halo-suckers (4) are often offered sneak peeks, tranche return protection, first pennies of every dollar collected or some sort of bonus dice blow--very little of which is kosher and none of which has ever prevented a dime’s worth of the catastrophic losses destined to inflict all. In short, warrants are come ons to start with, so exactly how shady they are is a matter of degree.

You will note that during the fly-like lifespan of the SPAC, the second cashing out phase never culminated. No one saw their pennies turned into IPO dollars nor bloated listings of equities on the NASDAQ. Which means that the 99 Billion dollars subdivided into 100 SPACs are now worth… wait for it… zilch. This clearly cannot be, since the SPACs themselves are simple balloons full of cash and should still have cash in them. Which can easily be returned. And I have a bridge in Brooklyn that you may buy with your returned SPAC funds.

During my first bout of opining and prognosticating on the wonderful SPAC Future I estimated that the originating parties numbered in the handful and that most of them were refugees from OTC pump and dump scams. I was close.

SPAC king. Former Facebooker and so-called king of the SPACs, Chamath Palihapitiya, has become the face of the great unraveling of these blank-check new issues. He raised billions for a series of SPACs which he regularly promotes on his social media channel. How are they doing? Per Bloomberg "Palihapitiya’s SPACs... have been among the worst bets."

By “Facebooker” our pals at Bloomberg are not referring to sub literates posting kitty photos and relationship updates in some sort of advertising supported internet garden. Nor are they actually referencing anyone who operationally works at Facebook. Instead, they are referring to a caste of people who became instant narco republic Richie Riches at the time Facebook became listed on the stock market. As I recall the investor pool’s story—which was made into a movie—most of these people were potential litigants against Facebook’s operator who took a piece of the action instead of suing the place into oblivion. Had they acted, there would be no Facebook, no Zuckerberg and they would have netted nothing other than goodwill assets (cups with the Facebook logo on it) and legal bills. In short, their qualification amounts to being ripped off by an internet start-up guy who stole their ideas and stole the money he was given to work on their projects and instead used all of it to start his own thing. Their improbable gain has been humanity’s loss. While I might want to rub one of these bozos for luck, their path to riches most resembles the one employed by Rodney King. Not the type of folks one should take advice from. (5)

In any case, I am going to have to find another niche to squander your attention with.

(1)  Lamestream Media: Also known as the press. To be distinguished from hate mongers and conduits for Russian disinformation or other social media rubes. An institution which has defended democracy world-wide, is professionally researched and deserving of trust.

(2) Massively unfair of me and racist. Still, if you could buy anything, why buy this? Why not buy a bunch of shoe stores. People actually need shoes.

(3) SPAC land. Also known by me as SPAC Land. Even though I did not coin the term, I insist that the Land itself be given its own prominence. At 99 Billion dollars it’s worth more than a lot of Lands out there.

(4) Halo-Suckers. Derived from the term Halo-Car, meaning a type of vehicle designed to bring people into the showroom, but which is seldom if ever purchased. A Halo-Sucker is an investor whose participation is attractive to other investors.

(5)  If Chamath Palihapitiya is so damn wise and prosperous, why is he peddling investments on a social media channel? Ditto Motley Fool and all of the other high profile investment touts. The answer to this question is both obvious and amazing.