SPAC Master Class: How To Take Advantage Of The SPAC Boom

Summary

• Seeking Alpha teamed up with Chris DeMuth Jr. for this one-of-a-kind Master Class on Special Purpose Acquisition Companies (SPACs).
• To find out more about the top SPACs of 2021 and get access to the entire Master Class click the link below.

Get Exclusive Access to the SPAC Master Class Now

The following text is a transcript for our readers who would like to follow along:

(Parts of this transcript may have been altered for readability.)

Daniel Snyder

Hey, I'm Daniel Snyder with Seeking Alpha, and in this video, I wanna give you a sneak peek at a brand new Master Class about a topic that is all over the financial media. SPACs, short for Special Purpose Acquisition Companies, were the hottest investment trend in 2020, and this year it's kicking into overdrive. It's just the first 1/4 of 2021, and there were more SPACs than all of last year. And with an average of 28 new SPACs every week, the pace doesn't appear to be slowing down anytime soon, but with all these new SPACs flooding the market, it creates a huge problem for individual investors like us. How do we find the best ones? The key is having a proven process, which is why Seeking Alpha has teamed up with hedge fund manager, Chris DeMuth Jr. for this special Master Class. Chris was the perfect choice to lead this four-part video series because there is no one I know of who does more research and leverages his contacts when it comes to SPACs. Not only was he ahead of the curve starting a new hedge fund last year, just for SPACs, but he is in the trenches doing deep research and posting in his private community here on Seeking Alpha. Let's take a sneak peek of some of what Chris revealed in the Master Class. I'm looking at the paper right here, and the last year alone there were 248 SPACs that went public and that's more than four times the amount that went public in 2019.

Chris DeMuth Jr.

Yeah, well this past year SPAC volume was more than all of the previous years in SPACs combined. You can start whenever you want, if you go back to the Roman empire to 2019, it was fewer than 2020. So it really exploded this past year.

Daniel Snyder

Yeah, and I mean, it's become a phenomenon, right? Like there's just an overwhelming amount of SPACs hitting the market. So how do you find the best SPACs to invest in?

Chris DeMuth Jr.

Well, you have to have a team, that certainly helps. You have to have a process, I think even this year, we have just in the first few months of 2021, you have 176 SPACs, so you need a system and a team to be able to sort through them.

Daniel Snyder

Wait, so you just said 176, and we're only just starting the year. I mean, this is crazy. We're seeing this crazy phenomenon. It sounds like your team and your processes is your secret sauce. Like from an investor standpoint, we should really be looking for SPACs that have warrants as well as rights.

Chris DeMuth Jr.

Well, it's an interesting paradox that the spectrum of how much stuff you get, how generous the units are, is a little bit of a tension because the unit construction's based on a negotiation, a back and forth with investors, either an explicit negotiation, or just kind of a sense of the market of what they can get away with. And the most well-regarded, biggest, most famous sponsor teams can get away with a lot stingier units, and the ones that are newer, smaller, less well-known can get away only with raising money with much more generous ones. And then rights in particular are often things that are kicked in when the negotiation with investors is not otherwise succeeding as well. So there's this tension, there's this back and forth between how much stuff you get and who you're dealing with.

Daniel Snyder

Now, correct me if I'm wrong, but it sounds like one of the big things that you are analyzing amongst your marketing, operational and top deal mixtures, you're also looking at protecting your money, protecting your capital that you initially put in. That's kind of what it sounds like.

Chris DeMuth Jr.

Yeah, so we invest in different securities along the way. At the beginning, your downside is protected by the trust value. My way that I tend to say it is, you know, when you put in $10, you have a free put and a free call. Not exactly you're putting a call, but the trust value is like a put, the warrant value is like a call. And so you contractually know you're getting the $10 back, but you don't know how likely that the deal's gonna get announced, how likely it's gonna be a good deal, how likely that the equity is gonna be valuable, and you always have opportunity costs. So even though I can have $10 of my investment protected, I have other things to do with the money, and so I'm not excited about putting in $10 just to get $10 and a little bit of change because you get interest on short-term notes back in two years. So you're kind of trying to figure out what your best allocation is, even within the money that you plan to invest in SPACs between the different teams. And you wanna get the best deal that you can.

Daniel Snyder

You mentioned to me that there's one additional thing that all investors should know when they are investing in SPACs. So I'm gonna let him tell you, Chris, what is this?

Chris DeMuth Jr.

Well, so besides just the basic investment in a SPAC unit, once you break them up, especially this past year's kind of new enthusiasm for this has created a lot of price anomalies between the different parts of the unit. So once you have the separate equity and warrant typically, there's a mathematical relationship that should exist between these two that just doesn't in practice, or at least hasn't recently. And there's a mathematical relationship that should exist between the equity and the equity options, and it just doesn't. I have some theories for why this opportunity is there. but it's very lucrative and very exploitable.

Daniel Snyder

Now, while this was just a small sample, the entire series is live now and ready for your viewing pleasure. To find out how to access it, just click the below this video, and I hope to see you in this SPAC MasterClass. Thanks for watching.

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