Investment

SPACs Are The Hot Investment Trend For 2020, Should You Participate? – Forbes

Published

4 years ago

August 31, 2020

Richard Branson’s Virgin Galactic used a SPAC structure to raise funds

ASSOCIATED PRESS

One pronounced trend for 2020 is the growth of funds flowing to Special Purpose Acquisition Companies (SPACs), sometimes called blank-check companies. SPACs have raised over $20 billion so far this year.

This is a banner year for SPACs, setting records for the number of deals and amount raised. Prominent figures have launched SPACs. such as Paul Ryan former speaker of the House of Representatives and Gary Cohn former director of the National Economic Council. Last month, hedge-fund manager Bill Ackman raised a $4 billion SPAC, the largest ever. The resulting deals are getting attention too, Draft Kings used a SPAC structure to go public in April as did Virgin Galactic

SPCE
in late 2019. Both have seen positive returns since.

How SPACs Work

The alternative name blank-check company is a useful summary of how SPACs work. Deal-makers raise money based on their credentials and expertise. They then specify plans for the area they want to invest in, such as U.S. fintech companies, for example.

Once the SPAC is funded, they have a war chest established and hunt for an attractive acquisition target. Despite the term blank check, investors in SPACs do have some protections. Once the deal is announced, if investors don’t like it they can typically redeem their shares, and if a deal doesn’t occur within a specified time frame, investors can get the remaining cash out. Also, investors typically hold both shares and warrants in the SPAC. The warrants enable the investor to increase their holding at a fixed price should the deal ultimately perform well.

For companies, SPACs can offer a quicker and less complex route to market than a full IPO process.

Risks

SPACs are, in one sense, just a means of enabling companies to trade publicly. Similar to an IPO process, the crucial element is the quality of the company being acquired. However, unfortunately the historic data on SPACs is not encouraging.

First off, SPACs can fail to find a suitable acquisition candidate. Yes, investors typically get their money back when this happens, but that can mean a return equivalent to Treasury bills for a period of years, rather than being invested in the market. That can be a big opportunity cost. With an IPO you can be confident your money will be put to work, with a SPAC you can’t be so sure.

Secondly, historically SPACs have not performed all that well. Historically SPACs are found to have lost about 3% a year compared to the market according to research from Jog and Sun. Though this is historical data, and more recent SPACs could fare better.

That said, when compared to a SPAC, the average performance of IPOs is not too hot either, since IPOs tend to underperform the market in their first year according to history. This does not bode well for today’s crop of SPACs. The same research found that SPAC managers do incredibly well from the transactions given they typically receive shares at discount prices, while investors may lose money, SPAC managers can accumulate substantial wealth via the SPAC process even if shareholders see gains depending on the terms of the deal.

Blank-check companies can trace their origins back to the blind pools of the South Sea Bubble of the eighteenth century. That’s not a great omen. SPACs can certainly benefit their managers, but the benefits to investors are less clear and this may be another sign of a relatively frothy stock market environment. As with IPOs, the success or failure of any SPAC, will depend on the specifics of the company being acquired. As with IPOs, deal-makers can reap large short-term rewards, but investors bare much of the long-term risk.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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