The year 2020 has witnessed several trend reversals due to the pandemic. Along with the change in the field of work culture and lifestyle, a notable shift is palpable in the investment world. For example, a major change noted in the IPO and M&A field is the rise of Black Check or Special Purchase Acquisition Company (SPAC).
Given the recent resurgence in blank check companies, Defiance ETFs recently launched a fundon SPACs. Defiance ETFs noted that the COVID-19 situation has made the Blank Check route more appealing for going public as virtual road shows are less effective. The route is also less complicated and pricey.
Big shot investors like Bill Ackman and Michael Klein have raised billions through their SPACs this year. About 45% of U.S. corporate executives are interested in pursuing SPACs, alliances and joint ventures, while only 35% still view traditional M&A as worth considering, according to Deloitte, as quoted in an article.
What Are Blank Check Companies?
Per U.S. Securities and Exchange Commission, a blank check or Special Purchase Acquisition Company (SPAC) is a “development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. These companies typically involve speculative investments and often fall within the SEC’s definition of penny stocks or are considered microcap stocks.”
Defiance NextGen SPAC IPO ETF (SPAK - Free Report) ) in Focus
The underlying Indxx SPAC & NextGen IPO Index of the fund SPAK tracks the performance of the common stock of newly listed Special Purpose Acquisition Companies (SPACs), ex-warrants, and initial public offerings (IPOs) derived from Acquisition Companies over the preceding 36 months.
An 80% weighting is attached to IPO companies derived from SPACs and 20% is allocated to the common stocks of newly listed Special Purpose Acquisition Companies. The fund is heavy on Draftkings (18.75%) and Clarivate (12.24%). The fund charges 45 bps in fees. In total, the fund currently has 36 holdings.
How Does It Fit In a Portfolio?
Till mid-August, SPACs have raised $22.5 billion to spend on deals this year, surpassing the record $13.6 billion raised in 2019. Virgin Galactic (SPCE - Free Report) jumped in prices after it was bought. DraftKings (DKNG - Free Report) gained following its entrance into the public market. DraftKings merged with SPAC Diamond Eagle Acquisition Corp. and SBTech and then hit the market (read: ETFs to Win From the DraftKings- Caesars-ESPN Deal)..
Going forward, the outlook for SPAC is rosy. Charlie Ergen, the chief executive at Dish Network, seeks to create a new company that will raise $1 billion through an IPO to fund acquisitions in the technology, media and telecom sectors. The blank check company called CONX looks to close its first deal within 24 months.
Another black check company, Atlas Crest Investment Corp., is looking to raise $500 million in a U.S. IPO, per Reuters.Space company Momentus intends to go public through a Stable Road’s SPAC with near $1 billion valuation. Social Capital SPAC will take Clover Health public in another SPAC deal worth $3.7 billion.
Cheery-picking the winners among individual SPACs is a bit tough, but the basket approach allows investors to access the most-liquid SPAC IPOs in a diversified basket. This clearly says why SPAK is a good bet for Q4. Investors should note that Q3 of this year was one of the busiest for M&A and IPOs. We do not see the winning momentum to cool down completely in Q4. This is yet another reason why SPACs will be in focus in the near term.
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