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1 SPAC We're Excited to Own -- Even Before It Makes a Deal

By Matthew Frankel, CFP® and Dan Caplinger - Mar 12, 2021 at 6:21AM

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Here's one bet on a great management team that two of our contributors recently made.

Buying a SPAC that hasn't announced its acquisition target yet can seem like a risky bet -- after all, you don't even know what type of business you're going to be investing in. But that's why it's important to focus on SPACs that are run by the best managers. 

In this Fool Live clip, recorded on March 4, contributors Dan Caplinger and Matt Frankel, CFP discuss why they both own shares of Pershing Square Tontine Holdings (PSTH -0.05%), even though there's no acquisition target yet. 

Matt Frankel: Dan, have you ever bought a SPAC that had no deal in mind or anything like that.

Dan Caplinger: Well, it depends. I did recently buy shares of Pershing Square Tontine. That has had various rumors, but nothing has really moved forward. In terms of buying stuff just straight out, no. But it doesn't mean I wouldn't. Like I said, a lot of it has to do with trading rules and what we'd write about. You're an active stock investor, but sometimes, I don't know how you do it because you write about them enough that you have to thread the needle there. You write the article, you wait long enough to write your next article, you get those shares bought in the disclosure window and you're good.

Matt Frankel: I keep a calendar to keep all that straight.

Dan Caplinger: But I got no problem with the idea of buying one with no candidate out there because, again, what you're basically doing is you're contracting out your investment due diligence to a manager. If that manager can do a good job and get a good deal for you, if that manager is going to make money and you're going to make money, and everybody is going to be happy. So when things work out well, that's how it works out. I still think that that's the case. It's going to distinguish the best SPACs from the rest. But more and more competition is just going to make it more and more difficult. I think you're going to have to be more careful with pre-merger-announcement SPACs. Going forward, you got to have confidence in the people who are working for you.

Matt Frankel: Let me ask you about Pershing Square Tontine for a second because they are in a class by themselves as size-wise. They have over $4 billion to work with. Including a PIPE [private investment in pubic equity], they could conceivably spend close to $10 billion on an acquisition. That really limits their investable universe. The good part is they could acquire companies that other SPACs can't because of the size. But it also is very limiting. What's your holy grail company that they could acquire out of their small investable universe? What companies have you heard and why do you, in particular, have that one in your portfolio?

Dan Caplinger: I got it because Bill Ackman has a good long-term investment record, and so I think that he can think outside the box and come up with solutions that might be interesting. For instance, most SPACs -- if you look at the prospectus for most SPACs -- it says that a SPAC can buy one or more target companies. You're right, Matt, that it's a lot of capital, and that limits potentially the size of companies. You'd have to have a big company if you're going to do one deal. But I think if Ackman found a company that was the right size but his SPAC was too big for it, he would just do the deal, and then he'd look to do another deal at some point in the future. If that means that maybe investors get half their money back at the end, but they get shares of the good company going forward, then that works for me. The other thing is that I think that the chances of having a deal that will move sharply higher out of the gate, just right when it's announced, it's limited to those big-name folks. Now, there are some surprises. Sometimes you have these no-name SPACs that end up with really good deals. It's only that good deal that puts them on the radar, and that's definitely the case. But I went with them because they, like so many other SPACs, have been trading down at a discount. They're not a Motley Fool pick, so I don't have to worry about the recommendation issues. I'm interested in seeing what Ackman is going to do with it. A lot of people are down on Ackman because he hasn't made a deal yet, but I like that patience. I think if that means he gets a better deal out of it, then that's going to be to my benefit going forward.

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Pershing Square Tontine Holdings, Ltd. Stock Quote
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