SPAC stocks have existed since the 1990s, Banking company GKN Securities, specifically founders David Nussbaum, Roger Gladstone and Robert Gladstone are who developed the template. Since 2003, when SPACs had experienced their last resurgence, SPAC stocks and public offerings have really come up in many different industries such as government contracting markets, consumer goods, energy, construction, financial services, sports & entertainment. The crazy thing about the SPAC stock template is that is popular as well in high growth emerging markets such as China and India.
During the lack of opportunities in 2003, for mid market investors to get involved with experienced managers combined with the trend of up sizing private equity funds, pushed companies to directly seek alternative means of securing capital. At the same time, the rapid growth of hedge funds and the lack of compelling returns available in traditional asset classes led institutional investors to popularize the SPAC stock structure given its relatively attractive risk reward profile.
The History Of SPAC Special Purpose Acquisition Company Trend
The history around SPAC stock interest on the rise forming in many sectors and are also being used for companies that wish to go public but otherwise cannot. Google trends have found the interest around spac stocks specifically has never been this hot. With SPAC stock investors are betting on management’s ability to succeed it does have it’s risks. SPACs compete directly with the private equity groups and strategic buyers for acquisition candidates. Tightening of competition between these groups could result in a bid for the best company and likely increase valuations.
- 2014: $1.8bn across 12 SPAC IPOs
- 2015: $3.9bn across 20 SPAC IPOs
- 2016: $3.5bn across 13 SPAC IPOs
- 2017: $10.1bn across 34 SPAC IPOs
- 2018: $10.7bn across 46 SPAC IPOs
- 2019: $13.6bn across 59 SPAC IPOs
SPAC stocks may be targeted by short sellers or “Greenmail” investors. Short sellers have not been very active in SPACs and this is one of the biggest bonuses to SPACs, since the stock price remains fairly steady unless there is a transaction announced.
SPAC stock shares are held by large hedge funds who do not actively trade the stock until after the closure of the initial business combination. Recent SPACs have incorporated provisions preventing public shareholders, either acting alone or in partnerships, from being able to exercise rights in excess of 20% shareholding this ends up compelling the executive management.
Is The SPAC Stock Hysteria Here To Stay ?
SPACs and penny stocks have been growing in popularity thanks to platforms like Robinhood or M1 finance offering cheap access. For the most part the big bonus behind SPAC stocks is that there are many companies looking for quick access to public money!
This is do to the lengthy time it takes to do a traditional IPO, which can take 6-12 months. So in recessions companies like Golden Nugget that need quick access to capital will always go this route.
With the rise of large capital being made on these SPAC stocks it will likly become a new trend here to stay as the word continues to spread amongst investors making bank in short periods of time!
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