SPAC Investing

[shamelesscloner]

The Muger DJC Q&A was great, wish he would have rambled more but The questions asked what exactly what I would’ve wanted to ask Munger.

 

SPACs got annihilated last week. Almost everything, even with deal announcements is back to near NAV. I think at this point it is a great value when you add the arbitrage put protection and call incentive.

 

There are quite a lot of value investing legends involved:

 

SPACs - Howard Marks, John Malone, Bernardo from 3G, Howard Marks all have SPACs. Also Bill Ackman

 

Investments - Seth Klarman has investments in a few SPACs. I had to check that twice when I read this but Seth also just did a PIPE in Reid Hoffman’s SPAC that merged with an eVTOL Joby with 4.6B EV valuation. He also owns shares in addition to the PIPE. I always thought Seth Klarman was doing this as arbitrage. But with the PIPE investment They’re locked in for five years. And by summer this year, the $10 floor arbitrage becomes $0.

 

Why is Seth Klarman investing in flying cars?

 

Don't forget Sam Zell with EQD. It's a fascinating space at the moment.

[ValueArb]

https://nvariant.substack.com/p/my-vc-convinced-me-to-short-spacs

 

"My VC convinced me to short SPACs"

[Ice77]

A few other SPACs of interest.

 

VYGG (12.3) - Alexander Tamas, very early investor in FB, Reddit and one of the most highly regarded dealmakers in the VC world.The Board has some marquee names from the tech world. Rumoured to be targeting Reddit.

 

AVAN (10.75) - Large European SPAC with a famous telecom billionaire at the helm. Europe is not crowded unlike the US so more likely to get a good deal. Rumoured to be targeting Klarna. Baupost and Citadel both own big stakes in this SPAC.

 

HZON (10.87) - Led by LA Dodgers owner/Draft Kings founder/ex-Netflix content exec. Targeting Media/Entertainment (e.g. Discord/Soundcloud/Cameo?). Baupost owns a stake here.

 

Looks like one of these three has fallen. HZON (10.12) is getting Sportsradar as per Bloomberg. This is a highly sought after asset (40% market share of the burgeoning sports betting data market). It's essentially an oligopoly business with high revenue visibility (60-70% of revenues are typically tied to long term contracts and the rest is volume based kicker). Margins at maturity are going to be excellent (40-50%) as it's a picks and shovel play on sports data/betting. There are a lot of tailwinds this year and next as most states legalize betting. Expect the stock to open 50%+ tomorrow, if not higher. 

[rosemontseneca]

There are a dozen or so recent SPAC IPOs trading at or below $10/unit right now.  Seems like buying these and selling the warrants and shares separately when they detach in ~2 months is free money and beats holding cash in a savings account.  What am I missing? 

[shamelesscloner]

There are a dozen or so recent SPAC IPOs trading at or below $10/unit right now.  Seems like buying these and selling the warrants and shares separately when they detach in ~2 months is free money and beats holding cash in a savings account.  What am I missing?

 

Just updated my SPAC wish list now, and I like what I see

[Ice77]

At $10-$10.5 some of the quality jockey SPACs are priced as quasi cash with embedded optionality. Seems like the thing to own in this overheated market since they are unlikely to fall more than 5-10% even if NASDAQ dives 30% (though never say never!)

[Arski]

It's a SPAC party!

 

Bought some AVAN and EQC, and maybe some BTNB if it comes down some more.

 

Had already a small stake in OACB and I'm down 5%.

[shamelesscloner]

It's a SPAC party!

 

Bought some AVAN and EQC, and maybe some BTNB if it comes down some more.

 

Had already a small stake in OACB and I'm down 5%.

 

You mean EQD?

 

Has anyone studied how far SPACs dropped during the global financial crisis (2008)?

[Arski]

It's a SPAC party!

 

Bought some AVAN and EQC, and maybe some BTNB if it comes down some more.

 

Had already a small stake in OACB and I'm down 5%.

 

You mean EQD?

 

Has anyone studied how far SPACs dropped during the global financial crisis (2008)?

 

Yes I mean EQD.

 

Here I found something interesting. But not very clear though.

https://www.spacresearch.com/newsletter?data-ipsquote-timestamp=2020-03-23

 

Most important takeaway I think is that SPACs do bottom as well, but definitely have less lower bottoms than stocks.

[Ronchong]

@shamelesscloner I recall Greg mentioning that it was high 8s/low 9s in the other thread.

 

I got out of most of my SPACs since the risk/reward is no longer attractive. The whole idea of investing in SPACs is so that

(i) You can have a quasi cash instrument with upside optionality to park your cash when there is nothing cheap to invest in

(ii) You have the ability to switch it out at a small gain/close to no loss and pick up quality businesses on the cheap when the market reverse.

 

Why is anyone investing in SPACs now when your view is that there would be bargains down the road?

[shamelesscloner]

@shamelesscloner I recall Greg mentioning that it was high 8s/low 9s in the other thread.

 

I got out of most of my SPACs since the risk/reward is no longer attractive. The whole idea of investing in SPACs is so that

(i) You can have a quasi cash instrument with upside optionality to park your cash when there is nothing cheap to invest in

(ii) You have the ability to switch it out at a small gain/close to no loss and pick up quality businesses on the cheap when the market reverse.

 

Why is anyone investing in SPACs now when your view is that there would be bargains down the road?

 

Because I have no idea when those bargains might be available. Buying into SPACs now feels like a nice contrarian bet ;)

[Gregmal]

You buy into select spacs right now because you have negligible(1-10%) downside and can quickly pivot out of them when better opportunities in the equity world arrive. I'd happily take a 5% haircut on a spac to buy into a great equity on a large-scale panic selloff. Heck, there was a point in time when 5% was a transaction cost. Its negligible in the right situation and in other situations its just temporary.

 

I will try at a later point to update the list I posted some months ago but Ive only bought a couple the during calendar 2021. But theres very much a point to owning these here because you get certainty in a market thats shitting itself. You get a quick few % on a market rebound. You get a potential deal announcement. Some you get warrant separation. And most excitingly, around $10 you can T these motherfuckers up like nothing else. Underwrite whatever you want but take BIOTU at $10.04. I made this a ~10% position today. If a assume a worst case scenario downside of $9 for the UNITS(yea right), my capital at risk is 1%. Who cares about 1%? Whereas in these sort of scenarios, the upside takes care of itself.

[Spekulatius]

You buy into select spacs right now because you have negligible(1-10%) downside and can quickly pivot out of them when better opportunities in the equity world arrive. I'd happily take a 5% haircut on a spac to buy into a great equity on a large-scale panic selloff. Heck, there was a point in time when 5% was a transaction cost. Its negligible in the right situation and in other situations its just temporary.

 

I will try at a later point to update the list I posted some months ago but Ive only bought a couple the during calendar 2021. But theres very much a point to owning these here because you get certainty in a market thats shitting itself. You get a quick few % on a market rebound. You get a potential deal announcement. Some you get warrant separation. And most excitingly, around $10 you can T these motherfuckers up like nothing else. Underwrite whatever you want but take BIOTU at $10.04. I made this a ~10% position today. If a assume a worst case scenario downside of $9 for the UNITS(yea right), my capital at risk is 1%. Who cares about 1%? Whereas in these sort of scenarios, the upside takes care of itself.

 

Hear hear! And most importantly welcome back, Gregmal.

[Ice77]

Pretty much. Instead of holding 25% cash, I'd rather hold 25% of SPACs that I like close to their NAV. My quasi cash doesn't sit idle as the deal optionality through a good jockey works behind the scenes (and i get a pop on some).

 

Meanwhile, if there's blood everywhere (today was a prime example), it can swiftly fund a compelling buy. People invest in jockeys all the time. Heck this forum is a jockey worship of sorts (a quasi SPAC). SPACs close to NAVs are jockey cash. It's got more power than ordinary cash given the jockey's pedigree and connections.

[Ronchong]

I get the original SPAC trade because that was a market where there was pretty much no opportunities.

 

But the SPAC risk/reward have changed these few days,.I would say that you are lucky to even get a 15% announcement pop these days. No SPAC I know of got above $11.5 on the announcement so you are risking 5% for max 15% gain. That doesn't seem like a good trade to me.

 

If the market ever get cheap enough, you can be pretty certain that SPACs would get sold off below their NAV. All this while, you have to liquidate your SPACs at a discount to switch over to whatever you want. Why lose 5% when you can lose none?

[Ice77]

I get the original SPAC trade because that was a market where there was pretty much no opportunities.

 

But the SPAC risk/reward have changed these few days,.I would say that you are lucky to even get a 15% announcement pop these days. No SPAC I know of got above $11.5 on the announcement so you are risking 5% for max 15% gain. That doesn't seem like a good trade to me.

 

If the market ever get cheap enough, you can be pretty certain that SPACs would get sold off below their NAV. All this while, you have to liquidate your SPACs at a discount to switch over to whatever you want. Why lose 5% when you can lose none?

 

For cash equivalents, I don’t mind that risk/return profile at all even now. That money would otherwise be just cash and earn nothing. And as I said, treat it like you would cash. If you find something else by all means fund it with this quasi cash. This strategy would not suit someone who is always fully invested as against someone who keeps a cash cushion.

[Gregmal]

Am going through the book and starting my usual Sunday game planning for the week ahead. Figured I'd list some of the SPAC holdings here to 1) see if anyone else has thoughts on these, 2) help others interested get a handle on some names, and 3) give examples of some of the things discussed earlier in the thread.

 

 

ACEVU, ACICU, CGROU, CFACU, CFIIU, ETACU, FUSEU, SRACU, FSRVU, FTIVU, LATNU, FRXU, LSAQ, SPNVU, CAPAU, IGACU, PTICU, SRSAU, OACBU

 

 

 

As requested! The updated list.

 

ACEVU- +43% sold on announcement 2/19

ACICU- +68% sold on announcement 2/10

CGROU- +38% sold on announcement 12/07

CFACU- +46% sold on announcement 2/12

CFIIU- +12% sold on announcement 12/1

ETACU- still hold

FUSEU- +31% sold on announcement 2/12

SRACU- +88% sold after announcement

FSRVU- +64% sold on announcement 1/12

FTIVU- +31% sold on announcement 1/25

LATNU- still hold

FRXU- +22% sold on announcement 2/10

LSAQ- still hold

SPNVU- +19% sold, broke 12 no news

CAPAU- +137% sold on announcement 2/18

IGACU- sold most around 12 on speculation pop, but still hold some

PTICU- still hold

SRSAU- still hold

OACBU- still hold

 

new adds: FLACU, LWACU, FOXWU, BIOTU, SPGSU, IIIIU

 

 

I think if anything based on dates and pops one can figure out where the top was, but the same could be said for many stocks if you use the recent chart as a marker. You could raise the issue on timing the trade as a risk, but I generally just keep it simple; sell on the day of the announcement, sell if it trades at too much of a premium to cash, sell if a real investment comes along and you need the capital. I view cash as garbage and with the money printers on full blast and showing now signs of stopping, I view these, especially now around $10 as a much better placeholder....even in some cases they are purely margined so add a 1% annual carry to the underwritten capital at risk.

 

Then again Id also point out that Ive been doing this for years and not just something I started when it became popular 10 months ago so my mentality is different. But the idea of $10(floor), $9.50(doomsday), upside-multiples of the downside, has always sounded pretty good to me. It isnt/wasnt uncommon for these to trade high 10s or low 11s 8-12 months after IPO, even pre mania. I'm also OK just flip flop trading for 2-3%. To each their own though.

[shamelesscloner]

Am going through the book and starting my usual Sunday game planning for the week ahead. Figured I'd list some of the SPAC holdings here to 1) see if anyone else has thoughts on these, 2) help others interested get a handle on some names, and 3) give examples of some of the things discussed earlier in the thread.

 

 

ACEVU, ACICU, CGROU, CFACU, CFIIU, ETACU, FUSEU, SRACU, FSRVU, FTIVU, LATNU, FRXU, LSAQ, SPNVU, CAPAU, IGACU, PTICU, SRSAU, OACBU

 

 

 

As requested! The updated list.

 

ACEVU- +43% sold on announcement 2/19

ACICU- +68% sold on announcement 2/10

CGROU- +38% sold on announcement 12/07

CFACU- +46% sold on announcement 2/12

CFIIU- +12% sold on announcement 12/1

ETACU- still hold

FUSEU- +31% sold on announcement 2/12

SRACU- +88% sold after announcement

FSRVU- +64% sold on announcement 1/12

FTIVU- +31% sold on announcement 1/25

LATNU- still hold

FRXU- +22% sold on announcement 2/10

LSAQ- still hold

SPNVU- +19% sold, broke 12 no news

CAPAU- +137% sold on announcement 2/18

IGACU- sold most around 12 on speculation pop, but still hold some

PTICU- still hold

SRSAU- still hold

OACBU- still hold

 

new adds: FLACU, LWACU, FOXWU, BIOTU, SPGSU, IIIIU

 

 

I think if anything based on dates and pops one can figure out where the top was, but the same could be said for many stocks if you use the recent chart as a marker. You could raise the issue on timing the trade as a risk, but I generally just keep it simple; sell on the day of the announcement, sell if it trades at too much of a premium to cash, sell if a real investment comes along and you need the capital. I view cash as garbage and with the money printers on full blast and showing now signs of stopping, I view these, especially now around $10 as a much better placeholder....even in some cases they are purely margined so add a 1% annual carry to the underwritten capital at risk.

 

Then again Id also point out that Ive been doing this for years and not just something I started when it became popular 10 months ago so my mentality is different. But the idea of $10(floor), $9.50(doomsday), upside-multiples of the downside, has always sounded pretty good to me. It isnt/wasnt uncommon for these to trade high 10s or low 11s 8-12 months after IPO, even pre mania. I'm also OK just flip flop trading for 2-3%. To each their own though.

 

Epic, thanks Gregmal! Is price the only differentiator for you on these new adds? In other words, would you buy the cheapest first?

[Gregmal]

Well, first, I'll say, its not all genius, just being in the market(as always) is important. Tangentially I was super disappointed because during my absence there was apparently oh so much hope that all of readthecliffnotes super duper highly important financial industry superstar professional friends would finally find their way back to COBF since apparently people like myself turned them off so much! Dont know what happened but was at the least hoping they could teach us how to make oodles of money like the big boys. Perhaps show us how to short highly levered retailers using an Excel sheet inspired declining same store sales thesis? I dunno. But for little old me....I generally just go with that dirty little thing called gut feeling. Spacs are all about 2 things. Price and Marketability. So if someone gives me a unit at $10, its free money. Because the warrant itself is worth something. You want a little bit of marketability in theme or even name. Meme-y shit is a check in the positive column. Also important and overlooked is warrant cut. Not all $10 units are equal. So as an example....BIOTU at $10. You have a hot sector theme...check. Meme-y name...doesnt get better then "Biotech acquisition", and then you've got a 1/2 warrant so at $10 thats money in the bank and from there you just have to decide for yourself whats the comfort level as the price moves up. But be careful as a unit at $10.05 with 1/3 of a warrant is not equal to a unit at 10.05 with 1/2 warrant. Unless it comps for it elsewhere. Like a superstar manager for instance.

 

So I wouldn't necessarily buy the cheapest first but it weighs into the equation. As does big ticket manager or even shit as stupidly simple as a marketable name with a good underwriter, etc. Hope this helps everyone interested.

[Ice77]

https://loupventures.com/spac-return-performance-resembles-venture-capital/

 

Interesting analysis of merged SPACs by Loup ventures. Returns for merged SPACs more closely resemble VC returns than the traditional stock market. For merged SPACs, top 20% SPACs provided 92% of total return as compared to NASDAQ 100 where top 20% stocks provided 51% of total return. Returns seem more concentrated..exhibiting a sort of power law. So if someone has an edge in deciphering the right targets, they would have greater dispersion from the median portfolio.

[Gregmal]

I think Loop is a little bit of a conflicted actor....what I'd look at is the historical returns associated with post deal spacs. They are pretty brutal. The May 2020-now phenomena is probably IMO short lived and certainly unsustainable simply from the basis of how many spacs are now out there. Chart the number of spacs launched by year starting in 2015. In no uncertain terms a bubble. Mean reversion is inevitable. That doesnt mean the pre announcement and pre deal close window still cant be an amazing hunting ground for opportunity though.

[ander]

Anyone familiar with the process of how long it takes to get the $10 per share back (i.e., the trust value) after you put in for a redemption?

[5xEBITDA]

Anyone familiar with the process of how long it takes to get the $10 per share back (i.e., the trust value) after you put in for a redemption?

 

10 business days following the actual notice of redemption at the special meeting of shareholders.

[rosemontseneca]

Plenty of higher quality new issues at or below $10.00.  I like FVIVU, FRWAU, KAHCU, LAACU and ROSSU as cash alternatives. 

[ValueArb]

Plenty of higher quality new issues at or below $10.00.  I like FVIVU, FRWAU, KAHCU, LAACU and ROSSU as cash alternatives.

 

Yep, thanks for the list. Trying to build up a diversified portfolio of SPACs, so I've come full circle.