Boston Omaha's New SPAC: What Investors Need to Know

Boston Omaha Corporation (BOC) is often compared to an early stage version of Berkshire Hathaway (BRK.A -0.65%) (BRK.B -0.54%). And like Berkshire, Boston Omaha prefers to pursue investment opportunities that have excellent risk-reward dynamics.

Unlike Berkshire, however, Boston Omaha is taking a much more "21st century" approach by sponsoring a special purpose acquisition company, or SPAC. In this Oct. 29, 2020 Fool Live video clip, Matt Frankel, CFP discusses the details of Yellowstone Acquisition Company and what investors should know about it. 

Matt Frankel: It can give them a nice little capital injection gradually as they go. So Boston Omaha, if you're not familiar I'll just give a brief like 20 second overview of the company. They are a holding company. They don't have any direct operations. What they do is they own a bunch of subsidiaries and a bunch of investments. Their subsidiaries currently operate in billboard advertising. They on a company called Link Media. They have insurance, and they have brought rural broadband internet. So those are all over the place, business lines that they operate in and they also have minority investments in a few realist, primarily real estate operations. So they decided and the reason they are very popular right their Boston Omaha has gotten a lot of attention. One of the Co-CEOs is Warren Buffett's great grand nephew and two it's set up a lot like Warren Buffett's company, Berkshire Hathaway, especially in its early days, where it was just primarily an insurance company and it was designed to generate capital to eventually grow into a conglomerate. A lot of people compare this to an early stage Berkshire. What's the natural next step being that it's 2020 getting into the SPAC game.

Boston Omaha just launched this SPAC, it's called Yellowstone Acquisition Corp. and they raised, I think a $150 million somewhere in that ballpark. Depending on how many of the underwriters exercise their options for an overallotment so they raised about a $150 million and their target is to acquire a business line that they don't currently invest in, specifically in real estate or finance. They have some real estate investments, but no fully owned businesses and real estate, that's what they are going to be looking for. They have a window where they have to find an acquisition target or else give investors their money back and it just started trading. It's still trading right at the IPO price it at this back IPO to $10 a share, I think it was $10.02 last I checked. So it's hovering right at the IPO price. Like Asit said, when you're investing in this you're investing in the management team, not a specific business. If you believe in Boston Omaha management team, that's what you'd be investing in. I'll discuss why it's beneficial to Boston Omaha to do this in a second but have you looked into Boston Omaha SPAC at all and seen what they're trying to do with it?

Asit Sharma: Yeah, I was very interested in this, I did have a chance to look through the S1 and it's interesting because the way that Boston Omaha is set up, there are few things that prevent them from taking a big equity stake in the company. So let's just say that they wanted to use their own balance sheet. Popular stock they've had in other like follow-on offering this year so they raise some more capital that way but really the way they're set up, they take some minority interest but to do an acquisition where they substantially acquire all of another business, it's going to give them pretty near the margins with a few regulatory things. They explain this in their S1 and we only have happening are today. So I'm not going to go into great detail about that-

Matt Frankel: Did we lose Asit or did we lose everything? I think it's just Asit. Okay. Asit's frozen, I want to get it to a couple of question that I see here. I see five of the same question, essentially. So, Aquaman says, "Do Boston Omaha shareholders benefit from this new SPAC or do you have to buy this SPAC separately?" Yes, to both of them? So, if you want to directly invest in the SPAC, as in take advantage of whatever business they end up buying, the direct way to invest would be to buy the SPAC itself. Having said that, Boston Omaha investors definitely owned a big chunk of this. So the way this was structured is Boston Omaha gets essentially 20 percent of the SPAC shares for nearly free. I think they paid $25,000 for 25 percent or 20 percent of a $150 million SPAC. They essentially get 20 percent of whatever upside happens here. They also have about seven million warrants, or it might be four million. I'm not sure the exact number, but they have millions of warrants that they bought to essentially buy more shares if their SPAC is successful. Since they got their 20 percent essentially for free, $25,000 for 20 percent of $150 million company is essentially for free. They have a 20 percent of whatever upside the SPAC creates, which could be huge if they IPO of the right company. It's essentially a risk-free bet from Boston Omaha's perspective.

If the SPAC doesn't really go anywhere, they lose their $25,000 in whatever regulatory fees they paid. If they can't find a company to acquire, they just returned investors money. But if the SPAC is successful and they turn that a $150 million investment by them and shareholders into billions of dollars, they own 20 percent of that. Which for a relatively small company like Boston Omaha, whose market cap is about $450 million, that could eventually be huge. Yes, as a Boston Omaha shareholder you benefit from this. This is not their primary business. It's not intended to be their primary business. It does open doors for them to be able to acquire or invest in a company that they normally wouldn't be able to. Like I said, they're about a $450 million company and that limits the amount. Even with about a $100 million of capital on the side, it limits the business that they could directly acquire. But with the SPAC, all you need is a few $100 million and you could acquire a company that's IPOs for billions of dollars and is eventually worth a whole lot more than that. This just opens the door up to a more meaningful acquisition for them. So it's really a risk-free betting target, bet for them. But like I said, if you want to just benefit from the SPAC, you will have to invest directly. But as a Boston Omaha shareholder, this is definitely a potentially needle moving thing if it works out.