Thread by @RamBhupatiraju

Excellent article by @CBinsights on #SPACs. 👏

✔️The basics
✔️Why now? For Private Companies & Investors
✔️Challenges & concerns
✔️Looking ahead

The article clarified few things well for me.👍

cbinsights.com/research/repor…

How it works👇

Benefits (in the ideal case of course) for the parties involved 👇

Watch out before you get too excited to get on this train.👇

My notes.

-SPAC structure adds Sponsor Risk (incentives, capabilities, their later actions dictated by Market conditions) on top of (prospective) Company Risk.

-Best case scenario for the target Co is
✔️Getting a great sponsor (including strategic guidance & operational experience)
✔️Getting a good price & a much faster path to Public Markets.

Downside is the high equity loss due to Founder shares to sponsor (usually 20% of SPAC).

-Retail investors don't get warrants to buy more shares (if they like the target Company) and don't get to redeem their shares (if they don't like the merger). 🤷‍♂️

Other than the occasional & quick chance of the SPAC acquiring a great Company that is not going the IPO route or Direct Listing, retail investors are assuming most of the risk and little of the rewards.

My biggest takeaway :

Down the road (might be pretty soon), If there are too many SPACs chasing too few opportunities (of good/interested Co's that want to be SPAC-ed), the quality criteria might come down, leading to poor acquisitions and bad final results

Remember the GFC...

1⃣A specific Financial Asset performing well initially📊
2⃣Too much Demand/Capital chasing those assets 💰💰
3⃣Obviously leading to higher supply but poor quality❌
4⃣Finally horrible results. 🤮

I'll learn for now, but stay away.🚫
Thanks, but no Thanks.👎