Macro Dragon: +440% SPAC Capital - Part I

Macro Dragon: +440% SPAC Capital - Part I

Equities 8 minutes to read
Kay Van-Petersen

Global Macro Strategist, Saxo Bank Group

Summary:  Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.


(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Macro Dragon: +440% SPAC Capital - Part I

SPAC 101

  • So what are SPACs? How do they work?

  • SPAC = Special Purpose Acquisition Vehicle

  • At their core, they are basically blank cheque companies that have been created with a specific mandate (investment thesis/theme) in mind to invest their shareholders money.

  • So for instance, lets say we put together the Dragon Squad of 4 individuals with a background in, Hospitality, Tourism & Leisure Travel – where they feel a lot of that industry has been decimated due to Covid-19, global shutdown etc.

  • These four horsewomen & men assemble a SPAC with a mandate to invest in that space. They raise $100m, from investors who like & want pure exposure to the investment thesis (SPAC’s mandate), in a company which then gets listed. They have a certain amount of time in which to make an acquisition in their space, after which if they are not successful, the capital gets returned to investors.

  • The pros of the SPAC pathway are the speed of which they can be done, 4-12m… as say opposed to an IPO pathway that can easily take 2-3yrs. So a lot of time is saved & as regular readers of the Dragon know, this is the biggest misallocation of resources & resourcefulness, its time. Generally speaking, we can get everything back… yet not time.

  • They are super flexible, because one is not tied up with the baggage that would come with a company – be it controlling shareholders of different views, constraints on strategy, balance sheet, leverage, cashflows, etc.

  • They are obviously leveraged for the principals, as well as amplified focus for investors – i.e. instead of say buying company X that has a 10% exposure to the Emerging Market Healthcare Equipment & Systems space, they can get 100% exposure to that theme.

  • Overall we have had a structural decline in companies going public, so SPACs always have the scarcity factor of bringing private companies public on their side which can sometimes result in very favorable demand/supply factors – especially or areas that have been very much in demand such as anything to do with Space or SaaS.

  • Generally from an investors perspective, they gain liquidity (can redeem their shares if they got into the SPAC before it listed) & can treat it as a free call option – i.e. some SPACs rise in value before even an asset has been a targeted, let alone successfully completed. The majority of the capital raises c. 85-99% sits in an escrow account, whose opportunity cost is exceptionally low given the level of real yields globally being negative.

  • In Part II of our SPAC Capital series we will touch on some of the bigger listed names – like IPOC, PSTHU, SPCE, DKNG, CCIV, STPK – the performance of SPACs overall, as well as the potential risks & opportunities around them.

  • From a Global Macro viewpoint, KVP believes we are in a regime of massive asset class inflation that is likely to last multiple years if not 5-10yrs – so whilst we may see some natural cooling off in the SPAC space... the combination of the backdrop regime, overall asset inflation & structurally lower supply of public companies likely means this is a vehicle that is here to stay.

Dragon Interviews…

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Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.

This is the way 

KVP

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