Special Purpose Acquisition Companies (SPACs) had a renaissance year in 2020. In a nutshell, a SPAC or "blank check company" raises money via sales of units (which are typically comprised of one common share and a fractional warrant). That money is then placed into a trust account, where it accrues interest while the SPAC management team seeks out a company to buy, either in part or in whole. The target company is then brought to the public market via a reverse merger.
In 2020, a total of 64 SPAC deals were completed. The deals have roared on in 2021, with a total of 40 completed. In 2020, former Blackstone senior managing director Chinh Chu led two deals which have proven to be, thus far, sound investments. Chu brought cloud-based supply chain software company E2Open and iconic potato chip maker Utz public via SPAC deals in 2020. E2Open has returned 37.2% from its $10 IPO level, while Utz has returned 150% from its $10 IPO level.
When investing in SPACs, you're essentially investing in management. So, it would make sense to stick with a team that has:
- Past experience in completing deals
- Complete SPAC deals that have performed well
- A variety of experience in different industries
- Connections to be able to find a quality target company
Full disclosure: I invested in Utz when it was still a SPAC - Collier Creek Holdings. I traded several SPACs in 2020 and have held onto two post-deal, Utz and Tattooed Chef. Recently, generally speaking, SPACs don't trade at the high premiums they did last year. One could say that the "easy, fast money" has been made. However, I have not become discouraged as the Chinh Chu led SPACs have been sound long-term holds thus far.
I am continuing to add and hold shares of CC Neuberger Principal Holdings II (NYSE: PRPB). This is Chu's fourth SPAC overall. With a trust account value of $828 million and an experienced team, there certainly appears to be a lot of potential here. No target rumors have hit the news wires.
From their S-1 filing:
We believe that our management team is positioned to drive ongoing value creation post-business combination, as our team has done with investments in various sectors over time. We believe our management team is well suited to identify opportunities that have the potential to generate attractive risk-adjusted returns for our shareholders.
The managements' background sector expertise includes:
- technology
- financials
- industrials
- consumer products
The current deadline to complete a deal is July 31, 2022. This date could be extended by a shareholder vote, if more time is necessary.
CC Capital and Neuberger Berman look to identify opportunities to partner with high quality companies that have long term-compounding potential with sustainable moats or barriers to entry in their respective markets while delivering significant value to its customers. CC Capital focuses its investment process on identifying substantial sources of incremental value to accrue to all stake holders. Neuberger Berman looks for opportunities to help ensure intrinsic value is realized in the public market through its lens around investor communication as a business strategy, best-in-class ESG and incentive alignment, and an appropriate capital structure.
From what I gather, they are not looking for a start-up or any kind of pre-revenue company. It seems to me they want to find an established company, much like Utz, to deliver long-term value. Perhaps not a flashy target. But the high institutional ownership of 80%, as of 6/8/21, is indicative of a boost of confidence in the SPAC management.
One criticism of SPAC investing is that you don't know what company you will ultimately be invested in. That's certainly true, but for me, Chu's track record speaks for itself.
This blog post represents my opinion and is not financial advice. I am not a financial advisor. Always perform your own due diligence and any trades/investments you do is at your own risk. I hold shares of PRPB, UTZ, and TTCF.
*Photo courtesy of Serpstat of Pexels
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