Hundreds of special purpose acquisition companies, or SPACs, have gone public in 2020 and 2021, and the reality is that not all of them will turn out to be smart investments. However, $4 billion blank-check company Pershing Square Tontine Holdings (PSTH 0.05%) is in a class all by itself. In this Fool Live video clip, recorded on March 15, Fool.com contributor Matt Frankel, CFP, tells Industry Focus host Jason Moser why he's bought shares of this particular SPAC for his own portfolio in recent months.
Jason Moser: This is a SPAC that hasn't identified its target yet, but there is a very familiar name associated with this one as well. This is Pershing Square Tontine Holdings, the ticker is PSTH, none other than Bill Ackman. You can say what you want about Mr. Ackman, but the fact of the matter is he's made some pretty good investments in his lifetime. What do you think about Pershing Square Tontine Holdings and what do you think the Ackman is after here?
Matt Frankel: We're going to have some fun with this one.
Moser: [laughs] OK.
Frankel: This is probably the most closely followed SPAC in the market that has not identified its target yet. And for good reason, it's the biggest one. This one raised over $4 billion in its IPO. So, Bill Ackman has a blank check with $4 billion written on it to go shopping with. It's the biggest SPAC by far in the market, including the one that acquired Lucid. That could be a good and bad thing. It's good in the sense that it allows the company to go after targets that other SPACs can't. Other SPACs can't conceivably go after a $50 billion company or something like that. It's bad in the sense that it limits it to big companies. The target, most likely, I mean a SPAC can acquire a $100 million company with a billion-dollar SPAC and just give it a lot of cash if you wanted to.
Frankel: But realistically this is going to be an acquisition target that has a valuation of at least I'd say $30 billion. When we've talked about Warren Buffett wanting to fire his elephant gun, that's what Bill Ackman is trying to do.
Frankel: Just a couple of other criteria that Ackman set out, and like most SPACs, these are intentionally vague. He wants to company with predictable cash flow, high-barrier market with a wide moat company meaning big competitive advantages, limited cyclicality. He doesn't want anything that would get crushed in a recession, for example, and a large-cap company. He specifically noted that a company would probably be eligible for the S&P 500 if Ackman were to take it public. A couple that were kicked around that turned out to not be true where Coinbase was one of the companies too he was rumored to be looking at, and it's confirmed that he had talks with Airbnb (ABNB 4.75%) before they actually went public, but they turned him down and said we want to go public the traditional route. So, the multi-billion dollar question here is "What is Bill Ackman targeting?"