letsmakemoney

Where's the SPAC Attack?

This is an interesting article, but I would suggest the author dig a bit deeper into what it means for current investors who buy publicly traded SPACs today. Would also suggest a list of them, and their current discounts to liquidation value. They are almost all trading at a risk/time discount to their redemption/liquidation value. If no deal is consummated, this discount will have closed, and the investor will have received the return associated with this time frame, and risk taken. It is somewhat analogous to risk arbitrage in terms of the way the spread trades.

Each SPAC is different, carries unique risks, and should be researched thoroughly before investing. As an example, you buy a SPAC at $9, no deal is announced over 12 months, you receive your liquidation value of $10. This $1 dollar equals an 11.1% annual return, just for waiting it out. This is an oversimplification, but it is more or less the reason hedge funds with longer time frame lock-ups are investing in these SPACS today, and they are likely applying 2-3x leverage to juice returns. They are in fact betting that no deals are announced, and that cash is returned to investors. Hedge fund are more or less capitalizing on this illiquidity premium associated with the SPAC. They are buying them from market participants with weaker long-term financing mechanisms.