Why Are Blank Cheque Companies, Or SPACs, Back In Trend?
In the seventh episode of Up to Speed with UBS, Eva Lee at UBS Global Wealth Management discusses the revival of SPACs and where you’re most likely to find the next Tesla
One of the hottest trends in public markets, a SPAC, or special purpose acquisition company, is essentially a shell company set up by investors to sidestep the lengthy process of going through an IPO.
Relying on the reputation of the founder, SPACs are often described as ‘blank cheque’ companies, with business leaders such as Bill Gates, Richard Branson and, closer to home, Adrian Cheng, setting up their own SPACs to invest in and take private companies public.
And they’re only growing in popularity. In 2019, only 59 were created; by 2020, SPACs accounted for more than 50 percent of new publicly listed US companies. So why the sudden interest and how is this all going to play out?
We asked these questions and more to Eva Lee, the head of Greater China equities at UBS Global Wealth Management’s Chief Investment Office, in the seventh episode of our podcast, Up to Speed with UBS. In conversation with Gen.T’s Lee Williamson, Lee shares why SPACs are a great shortcut (compared to an IPO) to a public listing, how covid’s low-interest rate environment influenced a SPAC resurgence, and how Asia is taking on Wall Street.
Here are a few excerpts from the conversation. Click the audio player below to listen to the full episode.
ON SPACS BEING A BLANK CHEQUE COMPANY
“A SPAC is a blank check company. It's very different from a typical IPO. They don't have business details. You don't know what the company revenue base is, you don't know what the growth prospect is; you’re basically buying, or believing, that the founder is going to secure something very interesting and put it into the shell company.”
ON SPACS BEING A SHORT-TERM INVESTMENT STRATEGY
“SPACS are for investors that have a very strong trading mindset. They believe that it will become big, and eventually, they can flip it. Definitely not for the long-term investor.”
ON SPACS BEING AN EASIER ROUTE TO PUBLIC LISTING THAN IPO
“SPAC companies are younger, riskier; they probably would even have difficulty completing a real IPO. But if they are ready, SPAC is a great vehicle for them, as it’s a shortcut. It's a great route to go for public listing.”
ON THE PREVAILING SPAC MERGER TRENDS
“The very sharp rise of Tesla’s share price has created a nice halo effect for electric vehicle-related companies. People are looking for the second or the third, equally as good as Tesla, SPAC acquisition.”
ON MITIGATING RISK WHEN INVESTING IN SPACS
“You’re actually better off to invest into a SPAC ETF (Exchange-Traded Fund) because that helps you to diversify a little bit more in terms of individual SPAC risk. When people are buying an ETF, you can buy a few together, and it's treated just like a security. You can buy it anywhere.”
ON SPACS GOING BEYOND JUST WALL STREET
“Singapore just introduced its SPAC routes in September. Hong Kong also introduced a SPAC route in January this year. So we should expect to see a lot more homegrown SPAC opportunities emerging in Asia.”
ON THE IMPORTANCE OF THE FOUNDER’S REPUTATION
“It is very much a personal and founder driven investment concept: the higher the risk, potentially the higher return.”
Quotes are edited for clarity and brevity.