Friday 12 March 2021


 These are a big US idea, Special Purpose Acquisition Companies. The idea being how do we scam retail investors into fake Private equity plays. 

They work because the whole finance industry gouges them at launch, then let's retail investor pump them up in the current delusionary market, before really celebrating the odd one that does a deal.

How do they gouge them? Well of course the investment banks and other plays all make plenty of fees by setting them up, these fees are set off against the IPO money raised. Also most of the fees are for money raising and getting the cornerstone investor. This is easy, warrants are issued to the cornerstone investor on a one warrant per one share basis. This way, insider investors are getting a buy one get one free issue. As soon as the IPO happens, they sell their original holding, often at a small profit. Then they are still in 100% of their original stake value for free. What is not to like! 

Retail investors don't get the warrants. They buy the shares and as they buy the shares after IPO every purchase is likely diluting the share value by turning in warrant into a share. Oh Dear, better hope they do that big acquisition quick. 

Also, to allow for all the warrants to be exercised, the SPAC holds cash on the balance sheet that it wont invest into its takeovers - so alot of the money 'raised' only exists to pay off the original investor group anyway. So the takeovers are always a bit less sexy than advertised. 

It becomes very hard for the savvy investors to lose any money and very hard for retail investors to make any. 

Anyway, SPAC's are such a good idea (also they are driven by a lack of IPO's, because Private Equity has really taken over the corporate ownership space) that we should copy them in the UK. How did the clever boys in the City not spot this opportunity first.  

We can't give financial advice here, suffice to say I won't be investing in any SPAC's as a retail investor. 


Swiss Bob said...

Shades of 1720 and the flotation of "a company for carrying out an undertaking of great advantage, but nobody to know what it is" only this time lots of people are at it because they can win on the fees and churn, leaving the risks as you say to latecomers like retail punters.

Timbo614 said...

If you think that SPACs are a scam...
I've just read today about the collapse of "Football Index" being billed as the biggest failure of a gambling firm in our history.

It seems that there you could buy and sell "virtual players" and get "dividends" based on their performance. But it seems to me this is just a big boys version of playground card trading. When I was young enough it was "The man from UNCLE" cards etc. A new twist on the playground trading is that a "rare" cards can be created at will by the bookie therefore as in your post CU, reducing the value of everyone's now not so rare cards!

Apparently people invested in this ponzi scheme and also gambled millions on the virtual cards / dividends.

I'd never heard of it.

CityUnslicker said...

Timbo - I had see it, heard all the talk sport adverts and thought it sounded odd. Will definitely look into it now, love this kind of BS!

Nick Drew said...

ah, The Man From U.N.C.L.E. ... and Thunderbirds!

I wasn't allowed to buy bubblegum, so I had to trade for the cards: I got the full set of Thunderbirds, including the rare one, No29 - The Roundhouse! (never did quite got the full set of MfU)

what about the digital blockchain artworks, eh? Maybe I should find some blockchain way of selling my digi-gallery

Timbo614 said...

@ND: A FULL SET of Thunderbirds!!

Thunderbirds was my must watch program! At that time TB the disease was a thing and I got called TB fever. Then Thunderbird 1 had my initials on it :) :)

Bill Quango MP said...

The 1966, retail, counter display box, for the bubblegum cards, is worth more than the set of cards.

DJK said...

OT, but we watched "Air Crew" last night on Youtube. This is a 1979 Soviet airline disaster movie. Great fun. Anyway, the disaster itself, with molten lava flowing towards an exploding oil refinery, earthquakes, dams busrting, and the plucky model plane taking off amid the raining fire, had exactly the look and feel of a mid-60s episode of Thunderbirds.

Old Git Carlisle said...

I go back to Dick Barton special agent - never forgiven BBC for taking it off and putting Archers on!!!!

E-K said...

Anything can happen in the next half hour.

Strikes me that virtual commodities are just a game and it's not the commodity itself that matters but the timing of getting in and getting out. Gambling in every sense of the word including the thrills and spills.