SPAC's & SPIV's

 These are a big US idea, Special Purpose Acquisition Companies. The idea being how do we scam retail investors into fake Private equity plays. 

They work because the whole finance industry gouges them at launch, then let’s retail investor pump them up in the current delusionary market, before really celebrating the odd one that does a deal.

How do they gouge them? Well of course the investment banks and other plays all make plenty of fees by setting them up, these fees are set off against the IPO money raised. Also most of the fees are for money raising and getting the cornerstone investor. This is easy, warrants are issued to the cornerstone investor on a one warrant per one share basis. This way, insider investors are getting a buy one get one free issue. As soon as the IPO happens, they sell their original holding, often at a small profit. Then they are still in 100% of their original stake value for free. What is not to like! 

Retail investors don’t get the warrants. They buy the shares and as they buy the shares after IPO every purchase is likely diluting the share value by turning in warrant into a share. Oh Dear, better hope they do that big acquisition quick. 

Also, to allow for all the warrants to be exercised, the SPAC holds cash on the balance sheet that it wont invest into its takeovers – so alot of the money ‘raised’ only exists to pay off the original investor group anyway. So the takeovers are always a bit less sexy than advertised. 

It becomes very hard for the savvy investors to lose any money and very hard for retail investors to make any. 

Anyway, SPAC’s are such a good idea (also they are driven by a lack of IPO’s, because Private Equity has really taken over the corporate ownership space) that we should copy them in the UK. How did the clever boys in the City not spot this opportunity first.  

We can’t give financial advice here, suffice to say I won’t be investing in any SPAC’s as a retail investor.