Fintech SPACs, personalities, and the $10 high-water mark
The US SPAC boom continues, and I do admit that I decided to invest in one of them just this month. It is part of eating my own lunch, but I promise I won’t talk my books (until my SPAC investment finds its target).
Last September I first wrote about SPACs with a focus around Fintech targets.
At that time, the data showed that 50% of US IPOs are SPACs! and in the Fintech space, Bancorp was the entity with solid presence as a manager of several SPACs in the series FNTC, FNTE, etc.
As the SoFi and BakkT SPAC merger announcements are fresh off the press, it is time to highlight the regulatory trick in IPOs via SPACs.
You see, the IPO of a blank check company is done in the traditional way which has elaborate requirements. However, since there is no business, no financials, no growth stories, there is no price discovery or information discovery through this process. Typically, it is priced at $10 with one-quarter of the warrant which gives you the right to buy another share at $11.50. You can think of it as a bridge loan to personalities as Chris rightly highlights in his Bloomberg piece Hedge Funds Love SPACs But You Should Watch Out
`… hedge funds are providing bridge loans that have enabled a host of famous names from the world of business, finance and politics to launch their own SPACs this year. The funds are often arbitrageurs, though, with no intention of remaining investors once a SPAC has found a merger target. Retail investors and institutional investors who hold SPACs as long-term investments once a deal is struck haven’t always done as well.`
Even the former Credit Suisse CEO Tidjane Thiam is rumored (the FT ) looking to launch a $250MM SPAC to “invest in financial services businesses in the developed and developing world”.
Once the target company is announced, the SPAC price starts conveying information about the pricing of the new shares that will be issued. Hopefully, most SPAC investors will see the potential capital appreciation and decide not to redeem their shares and hold them long term.
The regulatory trick here is that the Event is a merger and does not have to abide by the strict rules of disclosure of a traditional IPO. That is…