Here’s a spicy take from Michael Cembalest at JPMorgan:
The SPAC ecosystem involves significant wealth transfers from buy-and-hold investors to SPAC Arb investors, and from companies going public to SPAC Arb investors and SPAC sponsors
And here’s a list of people looking to cash in on this wealth transfer:
SPACs are a no-brainer for the sponsor.
Cembalest said, “The only way I can think of for sponsors to lose money: if post-merger share values fall below upfront costs, or when SPACs are liquidated with no merger.”
Not only can they not lose, but they’re winning, bigly. Over the last two years, the average return, even after concessions, forfeiture and vesting, was 648%. Even for lousy performers in the 15th percentile, you’re talking 178% gross, and 39% net.
A few days ago Jim Cramer said “These newer SPACs increasingly feel like an inside joke for the super-rich, and a way for celebrities to monetize their reputations.”
It looks like the joke is on us because the actual returns for SPAC investors have had mixed results, to put it kindly. The median investor lost 53% compared with the Russell 2000 Growth Index. The median post-merger investor lost 63% against the Russell 2000 Growth Index. This assumes you invested in each SPAC. which clearly nobody does. For people that were choosing some over others, the results were all over the place. The 85th percentile SPAC investor did 218%, the 15th percentile lost 17%. Choose wisely.
Josh and I spoke about SPACs as an inside joke and much more on our latest episode of What Are Your Thoughts?
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