6 SPACs investors should know.
Rather than dealing with the hassle of an initial public offering, an increasingly popular alternative for private companies is to become the target of a reverse merger courtesy of a SPAC. SPACs, or special purpose acquisition companies, go public strictly to raise funds in order to acquire private companies. Also called “blank check companies,” SPACs usually have two or three years to make a deal before they have to return the funds to investors. SPACs have existed since the early 2000s, but they have recently enjoyed a resurgence in popularity. In 2015, 20 SPACs went public; in 2019, 59 SPACs hit the market. That number has already been eclipsed as of August 2020 — but with more options than ever to choose from, prudent investors will do their homework to determine the best SPACs to buy. Here are six solid picks.
Pershing Square Tontine Holdings (ticker: PSTH.U)
Bigger isn’t always better, but when the biggest SPAC in history hits the market, investors should pay attention. As the name implies, Pershing Square Tontine Holdings is brought to you by hedge fund Pershing Square and its founder, Bill Ackman. Ackman is famous for his activist investing, so it makes sense why a SPAC would appeal to him — he can work with a target company’s management team directly, dig into the weeds of their finances and business model, and provide the funding to take that company to the next level. Speaking of funding, Pershing Square Tontine Holdings has plenty — the SPAC raised $4 billion when it went to market in July, and may raise an additional $3 billion in the future, making it well-positioned to take over one of the “mature unicorns” Ackman is looking for.
RedBall Acquisition (RBAC.U)
Buying low and selling high is one of the oldest principles in investing, and right now, the sports world is slumping. A lack of live sports has put a huge dent in profits for leagues and teams around the world, and RedBall Acquisition intends to get in while the getting’s good. The SPAC will focus on an acquisition “in the sports, media and data analytics sectors, with a focus on professional sports franchises.” RedBall’s management team is an all-star lineup that features co-chairman Gerry Cardinale, a former partner at Goldman Sachs who oversaw the creation of the YES Network, alongside co-chairman Billy Beane (of “Moneyball” fame), currently the executive vice president of baseball operations with the Oakland A’s. An expert management team with $575 million in funding is a winning combination for any investor.
Flying Eagle Acquisition Corp. (FEAC)
Jeff Sagansky and Harry Sloan have established six SPACs since 2011, each with varying degrees of success. Their most recent, DiamondEagle, has done very well for itself since it joined forces with DraftKings (DKNG); now the duo (along with partner Eli Baker) is looking to continue their hot streak with a new SPAC. Flying Eagle Acquisition went public on March 5, minting a hefty $600 million in funding — the only problem is that management doesn’t know where to spend it, stating in the prospectus that they “may pursue an initial business combination opportunity in any industry or sector.” Management’s prior SPAC investments live up to that philosophy, spanning airline media and entertainment, specialty rental and hospitality services, and sports betting.
Churchill Capital IV (CCIV.U)
Finding a SPAC investment in which management has experience going public, identifying a prospective business and executing a merger is key to investor success. One manager who has had plenty of experience in this area is Michael Klein, former Citigroup banker and current managing partner of M. Klein & Company. Klein has taken three SPACs to market since 2018, two of which have found acquisition targets; Churchill Capital IV is his fourth in two years, and with $1.8 billion in funding since going public at the end of July, Klein has plenty of cash to spend. His previous SPAC mergers include a deal with Clarivate (CCC), a leading provider of scientific information, analytical tools and services, and MultiPlan, a technology-enabled provider of end-to-end health care cost management solutions.
Deerfield Healthcare Technology Acquisition Corp. (DFHTU)
There’s plenty of opportunity in the health care sector, and Deerfield Management Company is intent on finding it. The investment firm focuses on both public and private health care companies, and it has brought three SPACs public since early 2018. The first, DFB Healthcare Acquisitions Corp., acquired AdaptHealth Corp., a leading provider of home health care equipment and services in November of last year. While its second SPAC, DFP Healthcare Acquisitions Corp., has yet to find a company to merge with, that didn’t stop Deerfield from taking a third SPAC public last month. Deerfield Healthcare Technology Acquisition Corp. will, as the name implies, look for a merger target within the health care technology industry, an area experiencing a recent boom as people avoid doctors’ offices and utilize online resources.
CC Neuberger Principal Holdings II (PRPB)
Just because a SPAC’s name doesn’t exactly roll off the tongue doesn’t mean investors should ignore it. CC Neuberger Principal Holdings II is a SPAC formed by Neuberger Berman, an asset management company, while CC Capital is a private investment firm led by Chinh Chu. Back in June, Chu successfully merged his other SPAC, Collier Creek Holdings, with Utz brands, the largest privately owned snack brand in the country. And in 2017, a previous blank check company, CF Holdings, merged with Fidelity & Guaranty Life. While CC Neuberger Principal Holdings I went public in April, it has yet to figure out where to spend the $414 million it raised. That hasn’t stopped Holdings II from raising $828 million, and the SPAC will be looking for merger targets in a broad spectrum of industries.
The top SPACs to buy now:
— Pershing Square Tontine Holdings (PSTH.U)
— RedBall Acquisition (RBAC.U)
— Flying Eagle Acquisition Corp. (FEAC)
— Churchill Capital IV (CCIV)
— Deerfield Healthcare Technology Acquisition Corp. (DFHTU)
— CC Neuberger Principal Holdings II (PRPB)
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