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What You Need to Know About SPACs
On today’s episode of The Financial Commute, we welcome Rajeev Das, a manager of SPACs (special purpose acquisition companies). A SPAC’s sole purpose is to facilitate a merger or a business combination between the SPAC and a privately owned enterprise to help that enterprise go public.
SPACs do this by issuing units to the public. Proceeds are placed in a trust account and invested in short-term U.S. Treasury bonds. Then, the SPACs team looks for a business combination within 18–24 months. If they are unsuccessful, the cash is returned to the investor with interest. If they are successful, the investors have the right to vote on the combination and request their money back if they disagree with the combination.
There are two ways to invest in SPACs: the pre-merger phase and the post-merger phase. Raj focuses on the pre-merger phase because investing in a company once it has gone public carries more risks. Raj says there is ample time to sell one’s shares if it is a well-received deal and there is no reason to stay past the post-merger phase.
Raj says the opportunity cost to investing in SPACs (rather than another investment) has decreased because we are no longer in a zero-interest-rate environment. An investor who pulls their money out from a pre-merger can now get their money back with 4% interest.
According to Raj, many people focus on how stocks of companies that were made public by a SPAC have done; however, this has been a rough year for the market in general, and SPACs may be worth examining for their safety and optionality.
DISCLOSURES:
Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and do not represent the views and opinions held by Morton Wealth. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.
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By Chris GaleskiOn today’s episode of The Financial Commute, we welcome Rajeev Das, a manager of SPACs (special purpose acquisition companies). A SPAC’s sole purpose is to facilitate a merger or a business combination between the SPAC and a privately owned enterprise to help that enterprise go public.
SPACs do this by issuing units to the public. Proceeds are placed in a trust account and invested in short-term U.S. Treasury bonds. Then, the SPACs team looks for a business combination within 18–24 months. If they are unsuccessful, the cash is returned to the investor with interest. If they are successful, the investors have the right to vote on the combination and request their money back if they disagree with the combination.
There are two ways to invest in SPACs: the pre-merger phase and the post-merger phase. Raj focuses on the pre-merger phase because investing in a company once it has gone public carries more risks. Raj says there is ample time to sell one’s shares if it is a well-received deal and there is no reason to stay past the post-merger phase.
Raj says the opportunity cost to investing in SPACs (rather than another investment) has decreased because we are no longer in a zero-interest-rate environment. An investor who pulls their money out from a pre-merger can now get their money back with 4% interest.
According to Raj, many people focus on how stocks of companies that were made public by a SPAC have done; however, this has been a rough year for the market in general, and SPACs may be worth examining for their safety and optionality.
DISCLOSURES:
Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and do not represent the views and opinions held by Morton Wealth. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.