Special purpose acquisition companies (SPACs) or “blank check companies” are shells. Their reason for being is to pool capital via IPO then identify a corporation to acquire.
You might remember, SPACs were all the rage last year. From athletes to celebrities, financiers and newbie retail, everybody seemed to be getting-in. 2021 was a SPAC rush!
613 SPACs were created in 2021.
More than $160 billion was raised.
Can you believe that!? $160 billion got dumped into shells last year.
Incredible.
For perspective — Between years 2003 and 2019 less than 400 SPACs were created (so 2021 was a SPAC-scheme rush year like never before).
Doing a spot check down the list I found the vast majority of these SPACs haven’t put any money to work. Not yet anyway. Either they’re searching for acquisition(s) or moving along the deal-making process toward concluding an acquisition, so there’s tons and tons of money looking for a home (in theory, I wouldn’t be surprised if many of these groups never make an acquisition and keep/steal the money).
Part of what got me thinking about these SPACs and writing about it was seeing how poorly they’re performing. Of course, tech stocks are in the midst of a serious selloff (so there’s some real bargains being created, some SPACs will be shopping and acquiring beaten down Pubcos.), but the “best SPACs” have done terrible (less publicized SPACs have done worse).
According to TheStreet.com these were the Top 5 SPACS of 2021:
1) SoFi Technologies (SOFI, NASDAQ) — a Fintech company making it easier for people to play around with giving loans and getting loans.
The Company raised $2.4 billion.
It began trading around $12.
SOFI then spiked to nearly $25.
As of Tuesday its trading $6.70, down 8% on the day and 44% below the SPAC listing price.
2) Clover Health (CLOV, NASDAQ) — an upstart health insurance provider for seniors.
Did senior citizens need another one of those? Like… really?
Great big idea though!
CLOV began trading around $11.
The stock traded up to nearly $29 at its peak.
Now CLOV is trading for $2.50 per share, down 77% from its SPAC listing price.
3) Bark Box (BARK, NASDAQ) — an e-commerce company that sells dog treats and toys.
Are you getting late 90s dot com vibes from these SPACs yet?
If you didn’t before you do now!
BARK managed to raise $454 million from “investors” (rabid speculators) lazy enough to jump and rollover for an opportunity to own a piece of an online pet store!
BARK started trading around $13, now it’s at $2.25 (ruff… what a dog! down 83%).
TheStreet.com‘s 4th and 5th favorite SPACs from last year are also down about 70%, or more.
But hey, at least some of CNBCs the favorite SPAC financiers of the day, like Chamath Palihapitaya, and Venture Capital firms did well. They created the biggest cash-out boom for VC’s in decades; CNBC pushed their narrative. Flipping their faux fast growth but all-too-real cash burning “businesses” to a new generation of unwitting investors whom are now left holding the bag.
I guess some things never change.
Bottom Line: I’m not quire sure about my main point here, but there’s probably more than 1. Such as be really-really careful when buying into what’s “popular” and “easy” according to the masses and mainstream media (but you already knew that). When you do go along be sure to jump ship FAST at the first sign of a trend change.