Bill Ackman’s SPAC, Pershing Square Tontine Holdings, announced it would be returning investor money after its initial business acquisition was nixed by the SEC.
His SPAC was the largest to date at $4 billion. But the gigantic size presented its own issues for Pershing Square – the universe of known companies needing $4 billion is somewhat constrained.
Among those potential companies was Stripe. While it’s unclear if this began as a Wall Street whisper or Reddit due diligence post – equally powerful financial influencers in 2021 – the speculation materialized across social and financial media. Twitter reply guys implored both Bill Ackman and Stripe founder Patrick Collison to combine businesses, as shown below.
Stripe, of course, could very easily go public; investment banks would fall over themselves to underwrite Stripe’s IPO. So what value would Stripe obtain from combining with a SPAC? Almost nothing!
Recent losses abound for SPAC shareholders. Numerous companies taken public via SPAC are trading below their pre-formation share prices. This indicates that, at least for now, investors overpaid for some of these companies like Clover Health (trading at $8.61 as of Friday vs. $10/share before SPAC combination after SEC investigation and profane CEO tirade).
Lordstown Motors, an electric vehicle company, now trades at ~$6.50 after its CEO & CFO resigned under scandal of having allegedly misrepresented the scope of pre-sales to customers. Velodyne Lidar has found itself embroiled in a family feud that has done nothing to help the precipitous fall in price – now also trading at ~$6.50/share.
Workhorse Group, another electric vehicle company, trades at $9.77 after touching a height of $40 in early 2021 and is now facing an SEC investigation. Nikola Motors trades at $10. As a group, SPACs are not faring well, as shown from the chart below from spacinsider.com:
To be fair, SPACs valuations have endured for some companies – Weedmaps (WM Technology Holdings) maintains an impressive market cap of $1.7 billion and trades above its pre-formation share price of $10 at nearly $14. QuantumScape similarly endures at $21/share but has begun to prompt questions around when its opaque solid state lithium battery may come to market.
And despite the headwinds, Pershing Square Tontine Holdings is evolving instead of going away: pending approval by the SEC, PSTH morph into a special purpose acquisition rights company, or “SPARC”. That hasn’t satisfied shareholders – the lawsuits have likely only just begun.
No one is happy about these acronyms but here we are. The market’s hype for SPACs has waned but hot money has to flow somewhere so now we have a contender: the SPARC.
If the meme culture around SPACs fades, it will certainly not be missed. Below is an example – Bill referring to investors as “Tontards” reflects an uncomfortable cultural aspect that has emerged as a result of ebullience for meme stocks and SPACs.
The door has not shut on SPACs – so long as a lucrative avenue for stock promotion exists, SPACs will continue to be formed but the meteoric growth has likely subsided.
San Francisco Securities Outlook 