Since 2015, the 89 SPACs that have completed mergers have an average loss of 18.8% (and a median loss of 36.1%).

During the same period, IPOs have gained 37.2%.

But Bill Ackman’s SPAC, Tontine, may shed light on the way forward. He got rid of the so-called founder shares that typically give their sponsors 20% of the new company, pretty much for free. He also changed the terms of the warrants investors receive, and is investing $1B of Pershing Square’s capital to help complete a merger. Both of these should make a costly PIPE (“private investment in public equity”) unnecessary.

The danger? “There is a lot of money going into SPACs, all of which have a limited amount of time to find good targets,” one source says. “The question is, what is the inventory of good targets? If that inventory is limited, then we should expect to see two things. Number one, SPACs may overpay for the targets, in which case the investment will ultimately perform poorly. Or some SPACs may, in desperation, accidentally purchase really bad companies.” Case in point: Nikola.

Source: Institutional Investor it’s a long but worthwhile read


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