Special purpose construction companies (SPACs) have taken the IPO market by storm. SPACs are blank check companies that have been created as shells to merge with a real company, making them public in the process.
Bill Ackman, chief executive of Pershing Square Capital Management LP, will speak at the … [+]
© 2017 Bloomberg Finance LP
Last year, of the $ 166.4 billion raised in initial public donations, $ 83.4 billion came through SPAC unions. The trend has continued in 2021, with 56 new SPACs brought to market in the first three weeks alone.
Hedge funds have been noticing the SPAC movement, and many have featured positions in several SPACs. Most bullish currencies are on the move, although at least one believes SPACs are in a bubble.
North Rock
Kelly Perkins at North Rock said they are bullish on SPACs, describing them as “a key part of the North Rock Capital Markets business. “In the fund’s fourth-quarter letter to investors, he said they take a SPAC-owned approach to investing differently from their core approach in the industry.
Instead of taking an arbitrage position by buying and then returning SPAC shares, North Rock supports sponsors that it believes “there is a high probability that they will act. perils. ”Perkins did not say which supporters they supported in the fourth quarter, but said that SPACs contributed about 3% to the fund’s return in 2020.
The capital of Corsair
Corsair Capital has been writing about SPACs since at least the third quarter. In their fourth quarter letter to investors, the management of the fund identified a handful of SPACs. Danimer, formerly of Live Oak Acquisition Corp., was one of Corsair’s most significant contributors to the quarter as its stock doubled. Shareholders unanimously approved the merger between Danimer and Live Oak, which the Corsair team described as “the Beyond Meat of the plastics industry.”
Corsair was also in Pershing Square Tontine Holdings, an SPAC started by Bill Ackman. The company was another of the key partners in the fourth quarter. Its stock jumped 22% in the fourth quarter.
Like North Rock, Corsair has been looking for SPAC IPOs where they believe management can buy strong business. They also want SPACs where the management can add value to the company with which they come together and support it with a lot of skin in the game and very little compensation.
Unlike North Rock, the Corsair team can see some SPACs as long or short term quality opportunities. They noted in their letter that many articles had clarified the similarly high valuations to SPACs, particularly those that merged with electric vehicle companies.
However, the Corsair team sees SPACs as “spin-ins,” which are similar to other products where a company “may be at the stage of inclusion in its physical growth as a result of capital inflows, new regulation or new physical singularity of purpose. “They believe SPACs can be good long-term opportunities with valuations that do not reflect the future or their short-term options with valuations that are too high and projections that are too high.
Sabrepoint
Sabrepoint Capital’s SPACs are short, according to its fourth-quarter letter to investors. Package Manager George Baxter said they see SPACs as “one of the best opportunities on the short term since we started. “
It is so bearish on SPACs because of the lock-in period that usually follows the merger with a company. Baxter explained that most of the SPACs merged in 2020 are dependent on locks that hit the market at an accelerating rate starting in March. When the market is flooded with shares in these SPACs, it expects to outperform investor commitment.
Baxter also said they have been finding “numerous” short-term opportunities linked to the “EV renewable energy bubble.” In fact, many SPACs have been coming together with EV makers.
Not surprisingly, hedge funds have been noticing the SPAC movement. We expect more and more hedge funds to reflect their views on these vehicles in future letters.