2020 Can be characterized by many things, from the coronavirus, to a wild election year, to the economy moving to everything stay at home. For me one of the few bright spots of 2020 is the rise of the SPAC as an investment vehicle for retail investors to finally get in on the wealth building action of wall street. SPAC is an acronym: Special Purpose Acquisition Company, also sometimes referred to as a blank check company. These are publicly traded shell companies that come to market via a no hype IPO, and these companies have one stated goal in mind with their cash on the balance sheet; to bring a private company public via a merger/acquisition.
The frenzy really began to catch on when the SPAC VectoIQ (VTIQ) announced that they would be merging with startup Nikola Motors, a pre-revenue early stage startup with some lofty hydrogen fuel cell/electric vehicle plans for the semi truck industry. They also had a very boisterous and flashy CEO Trevor Milton (in whom I interviewed here) that seemed to make a new outlandish claim about what Nikola would become every other day. The retail investors flocked to VTIQ like sharks to bloody waters and the stock went up over $90 post merger from where it started at $10 (where mostly all SPAC common shares start trading). After coming public, the scrutiny of Nikola became great and there was a nasty fall out that continues today with the former CEO/Chairman Trevor Milton and the company. The reason I shed light on this company in light of the rest of the SPAC market, is shortly after this merger occurred many other companies began to choose the path of coming public via a SPAC. Hyliion, BurgerFi, The Tattooed Chef, Golden Nugget Online Gaming, Fisker, Inc, and many others started lining up and setting the stage for one of the wildest rides I’ve ever been on.
Those few companies I named like Hyliion followed closely behind Nikola motors coming via a SPAC but that trend hasn’t slowed one bit, and more decent companies are announcing there intent to come public via a SPAC on a consistent basis. This is really setting up the potential for some of these to really be potential 5-10x companies that have great business models you can see this growth trend reflected below:
While Nikola left a black eye on SPACs, the method of entry hasn’t slowed. The way to play these is to really do a deep dive into the company and the leadership when announced and the ones that have potential, jump in and get ready for a ride. It’s a volatile niche market, but that volatility provides opportunity, also provides the chance for some serious gains. My portfolio this year has seen the most % upside by far that I’ve ever seen, and I plan on investing around 50% of my portfolio in SPACs for the foreseeable future.
SPACs are here to stay whether Wall Street likes it or not, while some have SPAC fatigue, I am invigorated and ready for the next announcement. Waiting and watching, ready to pounce!