Special purpose acquisition companies, or SPACs — not Spock as in Star Trek — are shell companies designed to raise capital in order to acquire unspecified target companies at some future time. SPACs are listed on the stock exchanges via initial public offerings (IPOs) of stock. When a SPAC buys a target company, the SPAC’s public listing, allows the target company to go public faster, and with fewer regulatory hoops, than going through a normal IPO process.
SPACs are pejoratively called “blank-check” companies because their stock shares represent no commercial business activity; rather they amount to shares in hope; specifically, the hope that the SPAC’s intention to “buy” a real company with real operations will work out and produce positive returns. Because of this, SPACs have a mixed reputation on the Street, and are considered speculative investment vehicles. Nonetheless, SPACs are having a banner year in 2020. According to data from Refinitiv, U.S. listed blank-check companies have already raised $38.6 billion YTD, a 270% increase over 2019.
I am writing this since currently, SPACs are hot on business talk shows such as CNBC, especially electric vehicle SPACs. High-profile investors and investment banks are backing a flurry of IPOs. The atmosphere around these deals is, well, electric, but the discussions seldom include any statements of caveat emptor, which means “buyer beware.” EV companies offer bold visions of the future of transportation, but so far little execution on that potential. Historical experience with introducing new technologies suggests that not all these companies will make it across the finish line. Hey, I don’t want to spoil the party, I just didn’t realize EV technology could give the stock market such a charge, and I hope it doesn’t turn into a shock.
Voya Investment Management has prepared this commentary for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future returns.
The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Strategy holdings are fluid and are subject to daily change based on market conditions and other factors.