A special purpose acquisition company (SPAC) is a publicly traded shell company with no business operations, created for the purpose of taking a private company public through an acquisition. SPACs have risen in popularity in 2020 as companies have sought liquidity and investors have been eager to buy into newly public companies.
SPACs will trade for up to two years before identifying a company to take public. Investors who buy into the SPAC before a deal is announced can get in ahead of the "IPO pop." The three SPACs highlighted below are promising candidates for investors looking to get in early.
Trine Acquisition
Trine Acquisition (TRNE) is an SPAC that went public in March 2019, raising $261 million. The SPAC intends to acquire a company in the media or communications industry and is led by Leo Hindery, a legendary cable executive whose resume includes orchestrating a mega $48 billion merger with AT&T and running the YES regional sports network (YES is now owned by Sinclair Broadcasting).
Hindery has also had a successful second career as a private equity investor focused on the media industry with InterMedia Partners. It is safe to say that Hindery is a skilled deal maker who knows the media and communications industry cold. In other words, he is the perfect person to run a SPAC.
There are many interesting private media companies today, as the internet has fragmented the industry and created many opportunities for new start-ups. For example, it wouldn't be surprising to see Trine acquire a fast-growing network of podcasts or YouTube channels -- but we will have to wait and see what Hindery brings to investors.
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Gores Metropoulos
Another promising SPAC is Gores Metropoulos (GMHI), which raised $375 million in February 2019. The SPAC intends to identify a company in the consumer products and services industry. The SPAC is led by CEO Alec Gores and Chairman Dean Metropoulos, who are both prominent private equity investors in their own right. Together, they have more than 65 years of private equity and entrepreneurial experience.
This SPAC isn't the team's first go-round. In 2013, Gore and Metropoulos teamed up to take Hostess Brands public via a SPAC. That deal brought an exciting consumer packaged goods company to the public market, which is a good sign that the current Gores Metropoulos SPAC could find a similarly attractive deal.
Flying Eagle Acquisition Corp.
Finally, the Flying Eagle Acquisition Corp. (FEAC) is a $600 million SPAC that IPOed in March 2020. The SPAC is keeping its options open by not narrowing its search to a specific target industry.
The SPAC is led by Jeff Sagansky and Eli Baker. This team is coming off of a huge victory in a prior SPAC that took DraftKings public in early 2020. DraftKings has been a poster child of the SPAC boom, and has seen its stock price rise significantly after announcing the SPAC IPO deal.
If the Flying Eagle Acquisition Corp. SPAC can recreate the success of the DraftKings deal, investors will do very well.
SPACs are here to stay
Over the last few years, SPACs have become an exciting investment vehicle. So far in 2020, more than 40 SPACs have come to market, raising over $14 billion -- which already exceeds the amount raised via SPACs in 2019.
Investors have taken notice, as this asset class has proven to be a good moneymaker. Some of the best-performing stocks of 2020, including DraftKings, Nikola Motors, and Virgin Galactic, all went public through SPACs.