Posted September 22, 2020
By Ray Blanco
SPACs are flooding into the stock market in 2020 and that could be a great thing for you!
Special purpose acquisition companies, or SPACs, are publicly traded stocks with no actual business operations that exist for the sole purpose of taking other companies public.
Heres how it works
A SPAC goes public, full of investor cash and looking for an attractive privately held business to take public. Typically, a SPAC looks for an acquisition target with some kind of theme it could be electric vehicles, or maybe space tech or cannabis.
(Sometimes, SPACs have a specific acquisition target in mind when they go public. But they arent required to disclose it beforehand.)
Once theyre publicly traded, the clock starts ticking. In a typical arrangement, the SPAC has two years to make a deal or return its cash to investors.
The net result is more opportunities for investors.
And those are badly needed.
Today, there are about 25% fewer small-cap stocks on the market than there were in 1995.
Heck, the Wilshire 5000 index only has 3,473 components today there arent 5,000 U.S. stocks anymore!
And a recent research piece from Morgan Stanley notes that 90% of the stocks that have disappeared are small- and microcap companies.
Part of the reason is that its a pain to go public. Companies would rather turn to venture capital investors to raise cash than go through the IPO process and pay big fees to Wall Street.
Going public through a SPAC relieves some of those pain points.
And it also opens new opportunities for retail investors by bringing companies public that would have only been available for venture capital firms or private equity investors previously.
Weve seen some big wins from SPACs lately...
For instance, Virgin Galactic (NYSE: SPCE) went public through a SPAC in late 2019, only to surge more than 250% by February.
And new SPAC issues are flooding the stock market this year.
Just last week, hot private company Opendoor announced that it was going public via Chamath Palihapitiyas Social Capital Hedosophia Holdings SPAC (NYSE: IPOB). IPOB is up 52% over the last month alone.
There are 108 SPACs on the market in 2020. Thats about double the number we saw last year.
Heres a list of some of the biggest that have already announced targets:
Expect many more SPAC opportunities to hit the market in the coming weeks and months.
Well be covering them in these pages as the opportunities unfold. Stay tuned!
Jonas Elmerraji, CMT