The SPAC stocks craze had tailed off since the peak in 2021 when it seemed like there were new mergers every day. But there are still plenty of companies that are choosing to go public via a SPAC merger. So, aside from being a funny-sounding word, what exactly does SPAC stand for?
SPAC is an acronym for Special Purpose Acquisition Company. It is a vehicle to bring private companies to the public market. The private company merges with the SPAC to create a new publicly traded entity. Is there a SPAC stock we should look at?
So, how exactly does this work? The SPAC or shell company raises funds by selling shares to investors. There is also a round of private investors who want to get in below the ground floor.
Once the entity has raised enough funding through public and private markets, it can choose a date to start trading as a stock. Last year, we saw a record number of companies go public via a SPAC merger with 613.
It is still a viable method for private companies to go public, but as I’ll discuss later, there can be some speed bumps along the way.
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SPAC Stocks List Introduction
Although SPAC stocks have seemed to slow down in 2022, many companies can still go public. As a result, we could see more of these types of stocks coming in the future.
Remember, the trend is your friend. So ensure that if you trade a SPAC stock, you place the trade once a trend is established. Trying to guess will get you into trouble.
When discussing SPAC mergers, you’ll often hear about a PIPE investor. It’s easy to be confused with all of these different acronyms. PIPE stands for Private Investment into Public Equity.
This is not specific to SPAC mergers but is important in publicizing the company. PIPE investors raise a bulk of the initial capital for the company and make it easier to list on the public market.
Who are PIPE investors? Usually, private equity firms or even wealthy individuals believe in the company. There has been some controversy about how these private companies present the opportunity to PIPE investors. These presentations are not always regulated, so some companies artificially enhance their numbers.
Another important thing to know about PIPE investors is there is a PIPE lockup expiration date. PIPE investors are locked into their investments until a certain date, usually six months after the company goes public. This can be a volatile period for the stock price, as there can be a large amount of selling.
What Is the NAV Price?
This is another common acronym used by the market for SPAC mergers. The NAV stands for the Net Asset Value. For SPAC stocks, the company raises capital for $10 per share. That is why you commonly see pre-merger SPAC stocks trading for around that $10 mark. After the merger, the stock does not need to adhere to that $10 floor price, as we have seen with many of the SPAC stocks from last year.
Initial Public Offering (IPO)
Before the SPAC outburst in 2021, this method was uncommon for companies. You could say that venture capitalist Chamath Palihapitiya was one of the catalysts as he organized several SPAC mergers. Other well-known investors like Bill Ackman also brought companies public through SPACs. But even though there were 613 SPAC mergers in 2021, there were still a record 968 traditional IPOs.
Still, it is the most common method for private companies to reach the public markets. An IPO is the issuance of new shares to public investors. Investment banks set the price of these shares, which gauge the demand for the company’s stock. IPOs are important for companies, allowing them to raise capital to build their business further. It can also be a time to reward early private investors and executives of the company. An IPO is arguably the preferred method of going public and is always an exciting first day for investors.
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Direct Listing
Some companies will choose to go public via a direct listing instead. In a direct listing, there is no underwriter to create the price for the stock. There are also no new shares created like in an IPO.
A direct listing is the sale of existing private shares of the company. Public investors are buying those shares from insiders of the company rather than the bank. Is there a better method?
It’s hard to say. Direct listing offerings are normally cheaper than IPO pricing, and the company can save money by not hiring an underwriter.
This could also be a more economical way of going public for investors. We like saving money when we’re going to buy a stock.
And direct listings take out some of the extras.
SPAC Stocks List
Of course, a good stock is always a subjective answer. What is a good company to one investor isn’t necessarily good for another. That said, some companies are doing better than others at this point. Here are some post-merger SPAC stocks to add to your watchlist.
1. DraftKings (NASDAQ: DKNG)
DraftKings went public via a SPAC in April 2020 before the major SPAC rush in 2021. The company is one of the major players in the sports betting industry and has official partnerships with the MLB, NFL, NHL, NBA, and numerous other professional sports leagues. DraftKings is also a daily fantasy sports industry leader, legal across most of the US. The majority owners of DraftKings include the Walt Disney Company and Vince McMahon of the WWE.
2. Lucid Group (NASDAQ: LCID)
Dubbed early on as the ‘Tesla-killer,’ Lucid went public via a SPAC merger in July 2021. The luxury EV maker is run by CEO Peter Rawlinson, a former executive and engineer with Tesla. The Reddit community picked up the stock and saw major volatility before Lucid went public.
Lucid has since officially delivered its first few hundred Air Sedan vehicles at the end of 2021. The stock has come under criticism as the company has a $50 billion market cap despite minimal revenues. In late 2021, the Air Sedan won the MotorTrend 2022 Car of the Year award.
3. SoFi Technologies (NASDAQ: SOFI)
You might recognize SoFi when you watch the Super Bowl later this month. The company has the exclusive naming rights to the new Los Angeles NFL stadium and has been working hard to prove its legitimacy. SoFi stands for Social Finance and is a financial technology company that helps users with its products and services. It also recently acquired a national bank charter to help beef up its loans and credit segments. SoFi is probably the most successful SPAC merger that Chamath has brought to the public markets.
Bad SPAC Stocks
I will preface this by saying that almost every post-merger SPAC stock has been beaten down by the recent growth sell-off. Quite a few of them are trading well below $10 per share right now, so there were a lot of choices for this list. However, these two stand out above all the rest right now, and I think you will agree.
1. Nikola Motors (NASDAQ: NKLA)
Nikola came public via a SPAC merger in June 2020 and took its shareholders on a roller coaster ride. The clean energy truck maker took advantage of the frothy market for EV stocks at the time.
A few days after it went public, Nikola’s stock surged to an all-time high price of $93.99 per share. Just two months later, in September, Nikola was at the center of allegations of being a fraudulent company.
This was when the infamous video of Nikola rolling its trucks down the hill occurred. Founder Trevor Milton was ousted from the company, and the stock has steadily fallen to its current levels in the single digits.
2. Lordstown Motors (NASDAQ: RIDE)
Lordstown Motors, another EV maker that went public through a SPAC merger, followed a similar path to Nikola. They took over a former General Motors production plant to build its next-generation electric pickup trucks. Eight months after it went public in June 2020, the company was at risk of bankruptcy. It reported to the SEC that it did not have enough money to start production of its vehicles. One week later, the CEO and CFO resigned on the same day. The stock peaked above $30 per share and is now trading at just above $3.00 per share, with a market cap of just $600 million.
Final Thoughts: SPAC Stocks
At this current point in time, it’s difficult to make an argument for SPAC stocks in general. Aside from the few strong companies, a majority of them are trading well below $10 per share. On top of that several have been accused of fraudulent activity and not even being able to sell a product. Of course, like anything in investing we cannot paint the entire SPAC sector with the same brush. But in my opinion, there has been enough controversy with these mergers that it’s not worth risking your money on. As always, do your due diligence and research on any stock or company you want to invest in.
