Spacs - The Final Frontier
Updated: Sep 13
No, it's not a typo and a blog about Star Trek but rather a metaphor. Spacs (Special Purpose Acquisition Companies) are currently being hyped in the financial press as the new financial innovation of the moment. They are, in essence, publicly quoted companies filled with cash, courtesy of speculative investors, with a credible management team and a plan to 'buy operating companies' in the near future. These are peddled as great opportunities to separate investors from their money, promoted by most of the same companies that brought you the mortgage-backed financial crisis of 2008.
There is nothing new here. Like a later series of Star Trek, Spacs are just a rehash of the original 'blind pool', Pink Sheet and Canadian exchange-listed companies used to separate naïve investors and their money back in the 1980s. The investment banks pushing them now may have upper-crust brands and the management team might have a pedigree, but it does not make them any less a product of hype and bubble-investing.
In Wolf of Wall Street, driving stocks with no substance up in price on just a promise of a sunny future vision and then getting out before the outside investors were colloquially known as 'Pump and Dump.' We should know by now, prestigious financial firms are not any cleaner than those at the grubby, end of the street.
I worked on Wall Street in the 1980s, this 'reinvention' of blind pools as Spacs is the result of a speculative bubble forming on the wave of cheap money and low yields elsewhere. Some investors will make many money. Many management teams running Spacs will overpay for their acquisitions and then find they are not as easy to manage and expand as they thought. Some will be fraudulent. There will be many investment bankers saying, 'Just trust me, on this one!' when they call for you to invest in a Spac story that is all based on promise and little substance; that expression should always be your l alarm bell!