August 3, 2020 BARRON’S 13
SPACsAre
WallStreet’s
HotNewThing.
Approach
WithCaution
“Blank-check companies” give investors a chance
to ride along with seasoned deal makers like Bill
Ackman looking to bring new businesses public.
Even baseball’s Billy Beane is joining the rush. Here’s
what you need to know to get ahead of the SPAC pack.
By NICHOLAS JASINSKI
Photograph by BENEDICT EVANS
et on me” is essentially the pitch that backers
of blank-check companies known as special
purpose acquisition companies, or SPACs,
make to investors.
While that’s usually not enough to persuade
seasoned investors to part with their money, it
has worked like a charm in these times of boom-
ing markets and practically free money. SPACs have been
raising money and doing deals at a never-before-seen rate
in 2020. SPAC initial public offerings are outpacing tradi-
tional IPOs this year. And some of the hottest new stocks
began life as SPACs:Nikola(ticker: NKLA),DraftKings
(DKNG), andVirgin Galactic Holdings(SPCE).
SPACs—first conceived in the 1990s—have gone into
overdrive, fueled by rock-bottom interest rates, a volatile
stock market, and an insatiable appetite for new public
growth companies.
How should retail investors who don’t ordinarily get
IPO allocations or face time with sponsors approach this
booming but once-obscure asset class? They shouldn’t ap-
proach it at all, unless they’re willing to do some real
homework. SPACs demand caution, knowledge of complex
details, and a willingness to dig through Securities and
Exchange Commission filings.
Signs of froth—the flood of IPOs, the online frenzy on
Reddit and Twitter, the celebrity participants—aren’t hard
to find. Yet the chance to get in on the ground floor of what
“B