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SPACs: A Bubble On The Verge Of Collapse

Mar. 05, 2021 12:37 AM ETLCID, CCV25 Comments


  • SPAC IPOs have shot up in popularity, reaching 200 last year and are expected to surpass 1,000 this year, due to key benefits the firms offer companies looking to go public.
  • SPACs often underperform the outside market, largely due to over-generated hype and dilution that is inherent to the SPAC IPO process.
  • SPACs exhibit the patterns of a bubble as companies begin trading above sensical values and interest in the alternative IPO system steadily rises.

In the wake of Churchill Capital’s (CCIV) meteoric rise, and subsequent fall, I was left with a desire to review the special purpose acquisition company (“SPAC”) system as a whole. SPACs have shot up in popularity recently, becoming a favorable means of an IPO for a host of different companies. While the latest high-profile debuts have largely been related to EVs, the variety of companies covered by these special purpose firms is wide. In this article, I will take a look at the SPAC’s rise to power and why investors should heed caution when considering an investment. For an overview of the SPAC process, check out this video from Seeking Alpha.

The Rise of the SPAC

Over recent years, this past year especially, SPACs have seen a meteoric rise in popularity. For the first time ever, SPAC-based IPOs exceeded those made by the traditional IPO process. While the $64 billion raised by the 200 SPAC IPOs came up $3 billion short of the $67 billion raised by the 194 traditional IPOs, SPACs made their presence known. With $9.69 billion raised in 2019, $3.49 billion in 2018, $3.83 billion in 2017, and $1.7 billion in 2016, the previous two years represented the strongest periods of growth for the blank check firms.

To provide some context to the scale of this growth, Churchill Capital’s deal with Lucid Motors (LUCIDM) is large enough to surpass total SPAC performance of these earlier years. This trend is far from slowing, with over 170 SPAC mergers already this year having raised a combined $52.8 billion. If this pace is to continue, we could see over 1,000 SPAC mergers this year, raising over $300 billion.

The promise of a SPAC can be intriguing to companies with a range of different backgrounds, which is why its growth is on

This article was written by

Long Term Tips profile picture

I tend to focus on long-term stock ideas, oftentimes rooted in tech or EVs. I have been a casual investor for years with solid returns and want to share what I have learned with others who may find value in my thoughts.

Analyst’s Disclosure: I am/we are long CCIV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

Shepferg2 profile picture
I agree with all of your points about risk, but would also point out that SPACs are the only way in on the ground floor for the retail investor, like me. I got very lucky with the Danimer (DNMR) SPAC, which allowed me to own a marine biodegradable plastic company before it was listed - just wish I had bought more, of course, because it was a 4 bagger before it was done! Now I'm tracking RSVA which offers early investment in a pretty revolutionary battery process developed by Enovix - basically, you'll be able to leave your laptop cord at home if you are out and about for the day and can quit worrying about your phone dying on the fly once this comes out. In both cases, they have proven production and a large market ready to buy the product. They just need the cash to scale up a proven idea. The giant risk is in "buy the news" kinds of shopping and buying the idea without being clear that the market is there. Since a SPAC can be buying pretty much anything - good or bad - you do have to make sure the produce is a winner. Pretty sure that RSVA is onto a big winner - same kind of win that DNMR offered, but only time will tell. Just a month later, the market is very different, and the exuberance is leaking out as we watch, so who knows if the multiples will be the same.

What I do know is that in the traditional IPO world, the only way I would have access to ground level entry would be to own some Berkshire Hathaway or similar conglomerate. Otherwise, the hedge funds have everything locked up with no way to be a direct owner in the early stage. SPACs let the little guy get in when there is actually some meat on the bone. So I'll take the risk in small measure while trying to catch the trophy wins.
Pacifica Yield profile picture
"Bubble on the verge of collapse" ... after prices have already fallen by 30% - 60% across the board going by when this article was published. I'll be buying more IPOE and BFT next week.
When an article like this comes out, you know we are at the bottom. I think it came today.
secorewb profile picture
Greed and useful idiots - Wall Street combo for over a 100 years.
"non-high-quality" Is that the same as low quality?
That's why SPAC is not really that suitable for mom and pop Buy-Low then HOLD + DRIP who prefer accumulating Nest Eggs for 20-40 years of ola age retirement.

- XLF: www.tradingview.com/...
- XLE: drive.google.com/...

They were the best buy-low then HOLD investments I ever made.

First was XLF that offered whopping 85% discount during 2008/09 GFC, and after a few years of Stress Tests, the Fed allowed them to distribute dividends now amounting to more than 10% yields on (my) costs. I bottomed fish 130 stocks and ETFs in Feb/March 2009 over-weighted in the most hated TBTF banks.

Then when crude oil collapsed very badly due to combination of Covid19 + Oil Price War, XLE offered 'unimaginable' 77% discount being the collateral damage of short-term oil plunge that greatly disconnected from it's long-term fundamentals. Hence bought lots and lots of oil/energy stocks, ETFs, and CEFs last March 2020 with 10-30+% super-yummy dividends and 70-90+% price discounts as investors panicked sold beyond belief. 10-30+% annual dividends is much better than 8-10% Dow Jones CAGRs and par excellence vs. 1+% treasury yields.

They are my primary sources of Nest Eggs for 20-40 years of retirement.


If history is to be repeated and the USA wanted to become great again, then Entrepreneurship has to be encouraged again.

- 1940s = the Wealth Gap Decade due to World War II;
- 1950s = the Golden Decade due to Mass Manufacturing Revolution;

- 1980s = the Wealth Gap Decade due to 1965-74 Lost Decade;
- 1990s = the Golden Decade due to High-Tech Revolutions;

- 2010s = the Wealth Gap Decade due to 2000-09 Lost Decade;
- 2020s = the Golden Decade due to more High-Tech Revolutions?

Industrial Revolutions of the late 19th century made Europe the wealthiest, most modern, and most powerful in the world wherein the English Empire reigned supreme.

- the Big Picture: drive.google.com/...

After Henry Ford invested Assembly-Line Concept in the 1940s and became the Mass Manufacturing Revolution of the 50s to early 60s; USA became the wealthiest, most modern, and most powerful country in the world.

After Japan Inc. 'stole' MM-Rev crown from US in the 70s to 80s, Japan became the miracle economy and USA suffered 2 lost decades of Stagnation + High/Hyper Inflation in the late 60s to early 80s that made Dow Jones the 'Sick Man of the World' during 1965 to 1974 Lost Decade (= 9 years). After China Inc. 'stole' MM-Rev from Japan in the 90s to 2000s, Japanese economy suffered Stagnation + Deflationary Pressures for 3 lost decades to date. China became the Miracle Economy of the 90s to 2000s able to industrialize and modernize it's huge country in just 2 decades.

USA was able to fight back in the 80s by inventing the PC + Automation Revolutions that made the economy most productive in the world in the 1990s and therefore the economy BOOMED again like the 1950s. Thanks mostly to PC + Software Revolution that enabled millions of Americans to become entrepreneurs and become successful and wealthy in the 1990s.


Post 2000-02 Dotcom Bust, the SEC started 'strangulating' entrepreneurship via excessive regulatory compliance regulations and aggravated by the 2008/09 Financial Crisis of the Century. In effect the US economy has suffered 2 Lost Decades from 2000s to 2010s with Stagnation + Deflationary Pressures not unlike Japan's.

- Global GDPs: drive.google.com/...

- Global Trade and Commerce: www.businessinsider.com/...
- EM Future Outlook: www.businessinsider.com/...

Fortunately despite stagnant US economy: Corporate America was able to offshore (huge) factories to China and other EMs in late 1990s with slave labor and able to compete globally on level playing fields; followed by the Service Sectors expending their operations abroad in the 2000s that resulted into 50% of CA revenues coming from abroad from 'tiny' 20% in the 80s and 90s. Mostly coming from China and the EMs where GDPs averaged north of 6% and inflation were high enough (5-10%) giving Corporate America substantial pricing powers and lots of revenue growths the past 11 years despite domestic 'cut-throat' competitions aggravated by deflationary pressures and low interest rates. Then post 2008/09 GFC, the Tech Sector also massively expanded their operations abroad spearheaded by AAPL with mere 1% back in 2011 toward 65% in just 5 years toward 2016.

However, despite successes of Corporate America wherein the whole world is now their 'oyster' the US economy remained stagnant with the Services Sector growing into 70% part of the economy. An economy dominated by low-income (temporary) manual laborers. Low-productivity menial jobs is not the right receipt for economic success, and having a 'chastity belt' against (high-income highly productive) entrepreneurs will keep the US economy stagnant for the foreseeable future toward economic 3 Lost Decades or more.

Neither is Corporate America going to relocate their operations from abroad back home and spend $Trillions of capex domestically as they are already very profitable globally out there making oodles of money and taxes for good old Uncle Sam.

China in recent decades steered their education system toward STEM and encouraged Entrepreneurship enabling China to become the most productive country in the world in the 2000s. In recent years China produced the most number of entrepreneurs joining the Million$ Club and also created more patents than the former champion USA. It is now expected China's economy to surpass the US within the next 5 to 10 years.

Unless the USA do something drastic to catch up against China's massive successes in developing their highly productive STEM industries.


SPACs compared to over-hyped Internet IPOs is a lot less risky comparatively but they did not succeed well in the 1990s, tough luck. Some of my colleagues became 'instant' $millionaires back in late 1990s just by flipping internet IPOs during the Dotcom Mania. Upon entering the equity markets in early 2000s I didn't know a thing about flipping McMansions and was not able to take advantage of the Housing Craze back then.

- Entrepreneurship Death Knell: www.bloomberg.com/...

- how to identify Irrational Exuberance: www.tradingview.com/...
- Nasdaq High Tech Manias: www.tradingview.com/...

- Nasdaq = 9,200% cap gains 1974 to 2000 = 26 yrs secular rally;
- SnP500 = 2,500%, ditto;
- Dow Jones = 1,930%, ditto.

That's how irrationally exuberant Nasdaq turned out to be with whopping 400% cap gains during 1996 to 2000 super-bubblicious rally.

Thus far, we had Digital + Cloud Revolutions for 2010s, but like the 1980s with PC + Automation Revolutions were not enough to make the economy highly productive and wealth. It was only when entrepreneurship became entrenched in the economy in the 1990s that became the Golden Decade as millions of Americans highly productive and also became middle-class citizens.

- BEV Revolution: www.tradingview.com/...
- Biotech Revolution: www.tradingview.com/...

Those are among the most expected incoming high-tech revolutions of the 2020s. Unlike the 1990s where Finland became a miracle-economy because of Nokia Cell Phones and the Internet Craze being mostly No Revenues = No Problem and No Earnings = No Problemo Jose,

- Cisco: www.tradingview.com/...
- AMZN: www.tradingview.com/...


- Tesla: www.tradingview.com/...

Cisco was the prime-mover of Internet Revolution in the 1990s that resulted into massive Irrational Exuberance 1994 to 2000 the crema-dela-crema of Dotcom Craze. Among the dotcoms Amazon became the most successful but not because of the Internet but by inventing AWS that made Amazon hugely profitable in recent years. SaaS and DaaS are now the most recent trend in high-tech computing that should start making IoT productive into the next decades instead of mostly (unproductive) Social Networking and Tweeting around all day long by millions of Americans and billions of people across the world.

Tesla is the prime-mover of incoming 2020s BEV Revolution for the US the past decade, and if TSLA and/or GM also discover level 4+/5 FSD the USA will have a global upper hand on Autonomous Driving Software + Robotaxis. Unfortunately, China is way ahead of the USA when it comes BEV Revolution and not necessarily behind Tesla and GM in FSD R&D, including VW for Germany and another FSD company in Israel with a working FSD prototype.

And thanks to Covid19 global pandemic, investors are now pouring $Billions of seed capital to cutting-edge R&D gene therapy not solely for fast-tracking vaccines but also to invent new cures for (all) diseases mankind suffered throughout history. The holiest of Holy Grails among high-tech revolutions that benefited mankind in modern history. But then again, due to lack of STEM graduates, the USA might lag behind China and Europe for that matter.

- FAII: www.tradingview.com/...
- DGNR: www.tradingview.com/...
- CCAC: www.tradingview.com/...
- ENVIU: www.tradingview.com/...
- HZON: www.tradingview.com/...

- DGNS: www.tradingview.com/...
- GSAH: www.tradingview.com/...
- AGCB: www.tradingview.com/...

Those are the SPACs bought recently as close to $10 base as possible using limit buys as Nasdaq started collapsing toward 11.4% minor correction today's bottom, since most of those SPACs are geared toward high-tech IPOs. I am risking about 5% of portfolio on this one. With potential 25% outright loss for management fees for a SPAC that failed to find suitable IPO candidate, the other potential risks author innumerate that could result into total 66% losses due to potential (unregulated) abusive practices may or may not actually happen and therefore not necessarily predictable.

Objective is to profit greatly with 3x multiples conservatively.

And possibly 10x or more multiples within the next 2 years if (and only if) SPACs proved the saving grace and became the champion of IPOs and in effect of Entrepreneurship for the USA - with or without the help of the Government and the SEC in reducing the excessive 'Red Tapes' of regulatory compliance they imposed upon Corporate America and lots of VC companies who are very reluctant to IPO to avoid very expensive regulatory compliance costs.

Unlike the Dotcom IPOs and other ordinary IPOs where individual venture capitalist may or may not have sufficient background in Economy and Finance; most of the SPAC managers are intellectually capable and highly experienced with lots of knowledge not only how companies in the real-world operate and more likely also have the know-how of better ways to contribute toward betterment of the US economy

Perhaps the last chance to make America Great Again with entrepreneurship.

Cheers and Good Luck.
jenny2014 profile picture
Do you think XLE is going to retrace soon? Or it will blast through $53 quickly? I sold my energy fund position two days ago, concerning about the coming correction of long term interest rate and oil price, also wanting to use the money to catch the falling knife of current market. Unfortunately, I immediately felt regretted and both the interest rate and oil price jumped high these two days. Thanks ahead.

- Crude Oil: www.tradingview.com/...

Crude oil now achieved ideal $65 Fibonacci Target on monthly previously identified weeks ago and commented at SA. There is also minor (red) resistances right now and toward the $75 uber-target with about $74 major resistance on monthly chart.

Very hard to EWA the recent vertical rally but it is most likely the maximum 13-waves complex rally, and with potential RSI double divergence sell signals; I sold 1/3 of 2xUCO and 1/5 of 3xERX and also 1/5 of 3xGUSH early this morning on ramp up above their B-Band upper resistances to maximize medium-term profits. I might buy them back but then again might not since more than 4x profits from UCO/ERX and 6+x from GUSH are very good for me already, next target = 10x or more profits or if crude oil/XLE produced 1-2-3-4-5 rally on weekly chart - for another partial profit taking procedure.

NOT selling any XLE and other oil/energy high-dividend stocks, ETF, and CEFs bottomed fish last March 2020, as they are among my nest eggs.

jenny2014 profile picture
Thanks a lot for the great reply. Very much appreciated. I'll wait for the retreat and re-enter the XLE shares. Luckily, I am still keeping my pipeline shares for reason of dividend, too.
Shepferg2 profile picture
@drbob512 Add RSVA to that list. See my comment above.
Spac lovers were all over me when I commented a couple of weeks ago that we reached the top.

I made a lot of $ trading spacs but know when to exit. Valuations matter in the end.

CCIV/Lucid was trading at $100B market cap at one time. Pre-revenue. Take the madness to the next level shall we.
Legacy Legends, LLC profile picture
I'm still up on all my SPACs except one, If you buy low and have a long horizons like more than 1 week lets just say, you may be surprised where some of these go next year.
Stone Fox Capital profile picture
Nothing wrong with SPACs, they are better for retail investors than over inflated IPOs. Selling shares to raise cash has to happen regardless of the SPAC. It happens in the IPO prices as well. The key as with any stock is to make sure one buys value and not fall for the hype.
@Stone Fox Capital

Not only finding great opportunities but have to get in early. The issue for retail given the insane # of spacs is finding that diamond and buying it before 100%+ appreciation.
Pacifica Yield profile picture
@Stone Fox Capital Exactly. There are tons of bad SPACs tons of great SPACs. Astute investors are able to shift through the bad to get the greats. In that sense SPACs are just like the general stock market.
Diesel profile picture
On the verge? Many of them already collapsed.
@Diesel They went down to their NAV floor, so not really a collapse unless you were stupid enough to buy them at a premium
@TheShort True though I'd imagine the majority bought them at a premium.
A good article. Dilution is in many ways the story of markets everywhere at the moment. Insiders just cannot stop. Daylight robbery.
bazooooka profile picture
Its great to keep a list of DeSpacs as potential shorts but they can make good longs too. Everything is a function of the price you pay in the long run. There will be dozens or even hundred of DeSpacs that will fall to seven bucks or below when this era is over. But many of them, at the right price, will make great long term investments. Most IPOs eventually break IPO pricing down the road as well - like in anything know what you own.
BasedCapitalist profile picture
Plenty of bad SPACs and plenty of good SPACs. This may be the worst-timed article ever published. Most SPACs are very unlikely to fall much further at this point and present very little risk, which makes them a unique safe haven and a great buying opportunity during a potential correction. Still time to get in early on Quantum Computers $DMYI or Space Rockets $HOL $VACQ or Meatball Submarines $PSTH.
Trade In Mexico profile picture
Many SPAC stocks are now trading at or near $10 redemption value. Anyone who thinks there will be a "collapse" from these levels doesn't get it.

Sure did some stocks like QS go from $10 to over $100 like a bubble, yes, but that is NOT representative of the whole sector.

Reality is buying pre-deal SPAC stocks at or near $10 is just about the most RISK FREE way to be in the stock market because you can always redeem for the $10 cash value and yet you might get the next QS to $100 plus, or DKNG to $60, CCIV to $60, DM to $30 plus, etc.

Very troubling (and wrong) to hear you cast the word bubble or collapse on most SPACs which are at or near $10 now and can give you $10 per share in cash if you don't like the deal and yet provide asymmetrical upside in many cases.

The SPAC stock sector is now saturated by too many new offerings, but there are SPACS that are several months old, with hugely successful dealmakers and track records, like CRHC, APSG, GSAH, BTAQ, etc. and these will rebound soon because of the quality and fact that a deal could be imminent. The newer entrants I have no interest in because the best companies will be snapped up by the older SPACs that are already deep into negotiations or just about to announce a deal.
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