SPACs for speculators

Investment Analysis Clubs Macro Economic Trends and Risks
1

I can’t imagine how anyone would be speculative enough to trust a SPAC. But hey, there’s Vegas, right?

https://www.nytimes.com/2025/05/19/business/trump-spac-deals.html

Wall Street’s Riskiest Stock Deals Are Back, With a Trump Bump

President Trump’s associates and crypto entrepreneurs are rushing back to the market for the once-hot, but mostly troubled, investment vehicles called special purpose acquisition companies.
By Maureen Farrell, The New York Times, May 19, 2025

…
There has been a flurry of SPAC deals announced in the past month, and the most sought-after ones involve people in President Trump’s orbit or investments close to his heart…

SPACs, or special purpose acquisition companies, are inherently speculative. They allow people to raise money in the stock market, without a business plan. Instead, the executives usually have two years to acquire a business with the funds they raised, or they have to give the money back…

SPACs have been lucrative for many of the sponsors who can take fees and stakes in the companies once they strike a deal. It’s a boon for banks that can generate fees when they first take a company public and again when the SPAC acquires a business to run…

This year, 45 SPACs have raised money, and 21 of those have come to market in the past month. Bankers and investors said sponsors were planning for many more in the coming weeks and months.

As Bitcoin and crypto assets continue to trade higher, many of the latest SPACs have either explicitly noted they’re hunting for crypto deals or simply raised the possibility of doing such a deal in investor meetings…[end quote]

The Securities and Exchange Commission (SEC) has strict rules for Initial Public Offerings (IPOs). The SEC plays a crucial role in regulating Initial Public Offerings (IPOs) to protect investors and ensure fairness. Key rules include filing a registration statement with the SEC, adhering to specific disclosure requirements, and adhering to timelines for financial statements. Additionally, the SEC enforces rules related to communications during an IPO roadshow and regulates the use of electronic roadshows. This protects investors since they can see what the business is, what the plan is and the financial statements.

But what if an organizer (or group) wants to rake in cash from a bunch of speculative chumps who don’t care whether there’s even an idea of what the money will be invested in, much less a plan?

This is called a “special purpose acquisition company” (SPAC). It’s not regulated. It exists for the organizers to fleece the investors. It has two years to do something with the money – whatever.

It’s a sign that the froth in the markets is still bubbling. Speculators are still willing to risk their cash, sight-unseen.

Wendy

3 Likes
2

It’s not the SPAC itself that is risky, it’s the cr@p the SPAC operators are putting into it!

(The concept of using a SPAC to become a public company faster, easier, and less costly than otherwise, isn’t a terrible idea in itself.)

1 Like
3

You know they have to be risky if I will not touch them, who knows what is in them but whats worse is that the vast majority have underperformed the market.

4

I don’t touch them either, because they are almost always filled with junk. However, once, a while back (maybe a decade or so), I was considering investing into something that the founders thought would be better as a public company … and they considered using a SPAC structure for it. The deal never happened in the end, so there was no investment.

5

Who knows, maybe once in a while organizers who can’t get their act together well enough to meet SEC requirements for an IPO are actually capable of organizing a SPAC that would produce good results for investors. But I wouldn’t bet on it.
Wendy

2 Likes