SPACs: What could possibly go wrong?

Investment Analysis Clubs Macro Economic Trends and Risks
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A “SPAC” is a Special Purpose Acquisition Company. Sometimes called “blank check” companies, SPACs have no operations but collect money from investors. The SPAC then merges with a smaller company, enabling the smaller company to list on an exchange.

The smaller company needs the SPAC because its information and capital don’t meet the minimum SEC requirements for an IPO. By definition, its information and capital are substandard and not trustworthy or it would be able to list as an IPO, saving the owners the money taken by the SPAC.

For the investors in the SPAC, what could possibly go wrong?

When I first read about SPACs, I thought, “You’ve got to be kidding me.”

I think these investors are the same people who buy cryptocurrency or gold share funds. There’s a sucker born every minute.

https://www.wsj.com/articles/spacs-are-warning-they-may-go-b…

**SPACs Are Warning They May Go Bust**
**More than two dozen companies say they may not survive much longer**
**By Eliot Brown, The Wall Street Journal, May 27, 2022**

**...**
**At least 25 companies that merged with special-purpose acquisition companies between 2020 and 2021 have issued so-called going-concern warnings in recent months, according to research firm Audit Analytics. ...**

**The companies with warnings amount to more than 10% of the 232 companies that listed through SPACs in that period, Audit Analytics said. That percentage is roughly double that for companies that listed through more-traditional initial public offerings, Audit Analytics said. The count excludes hundreds of IPOs by blank-check companies — SPACs before they merge with a private company — which often carry going-concern notices of their own. ...The relatively large number of dire warnings is the latest example of the rough state of the SPAC sector, where scores of companies raised hundreds of millions of dollars as part of public listings. ...** [end quote]

A going-concern warning is, in fact, a prediction of future failure. Some warnings are defensive — protecting against potential litigation — and given to solvent entities.
https://seekingalpha.com/article/4347491-going-concern-warni…

When the Federal Reserve pushes real interest rates to negative, all kind of speculators crawl out of the woodwork. Remember that the hundreds of millions of dollars came from someone, often borrowed. Someone will lose big.

Wendy

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When I first read of SPACs on this page some years ago, my first thought was the private equity model isn’t enough, so now they can use a SPAC to collect other people’s money, to take control of bigger companies, for SPAC management to loot, to make more profit for themselves, then dump the empty husk into BK and shaft other stakeholders.

As someone said wrt PE companies, some years ago, in most countries this would be fraud. But here, it’s Shiny.

Steve

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