Therefore, some experts believe that these companies could eventually be a new source of speculative bubble. This was stated by the server of The Wall Street Journal (WSJ).
These are companies that are abbreviated as SPAC, in English, special-purpose acquisition companies. That is, companies whose goal is to focus on acquisitions. Recently, these companies are mainly looking for start-ups in the high-tech sector. Well-known names are also involved, not only the famous investor William Ackman, but also, for example, former NBA basketball player Shaquille O’Neal and former Speaker of the House of Representatives Paul Ryan.
SPACs are an increasingly common financing tool for private companies interested in putting their shares on the public market. Thus, in 2019, for example, the company Virgin Galactic of the British billionaire Richard Branson went public. Almost 300 companies referred to as SPAC are now looking for a suitable acquisition target. They have a total of about $ 90 billion at their disposal (around 1.9 trillion crowns) and in recent weeks an average of five such companies have been established every working day.
“Who doesn’t have their own SPAC as if they weren’t,” said Peter Inwater, founder of Financial Research Research.
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Companies called SPACs have shares on the stock exchange and investors’ money at their disposal. Apart from looking for a suitable private company to buy, they do nothing else. When they find her, they merge with her, bringing her to the stock market. It is faster and usually cheaper than if such a company sought to enter the stock exchange itself. Following a merger, SPAC will often take over the name of the company it has purchased.
Investors who have bought SPAC shares do not know in advance which SPAC company they will eventually buy. They must rely on the managers who manage SPAC to select the appropriate facility. If they are not satisfied, however, they may want the money back, which was not possible before. These transactions are of interest because they bring significant profits to the founders of SPAC. They also allow young companies to enter the stock exchange for whom it might otherwise be difficult. However, even those who make profits from transactions of this kind point to the risk of a speculative bubble. Goldman Sachs recently warned before that.
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SPAC accounts for more than 70 percent of the money other companies received from the initial public offering (IPO) of shares this month. It was less than half last year and 20 percent a year earlier, according to Dealogic. Since the beginning of this year, 67 SPACs have been created, which have received almost $ 20 billion from investors. This is well above the amount for the whole of 2019, which was a record before the SPAC phenomenon spread sharply last year. SPAC received an unprecedented $ 82 billion last year.
“When you hear that everyone is already talking about SPAC, the question is whether it’s no longer a speculative mania,” said Roy Behren, a member of Westchester Capital Management who invests in SPAC. A lack of transparency in the process of valuing companies could also prove to be a problem, which can lead to SPAC buying overpriced companies. Therefore, the situation at the turn of the millennium, when the bubble of internet stocks collapsed and there was a fall on stock exchanges, could be repeated, warns Atwater from the Financial Insyghts.
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