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The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

mergersandinquisitions.com

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Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#41

Post by endymi0n »

Super dumb question: As far as I see, SPACs are usually smaller than the companies they acquire. What keeps a company from just paying out some profit to the founders, them setting up a SPAC themselves from that money, IPO it and then reverse merging the company?

Is it time to market? Conflict of interest? Are there limitations to the size difference?

I'm just thinking that since the "vehicle" seems to be useful, shouldn't there a race to the bottom be going on in terms of sponsor margins? As in essence, the value any of them provide seems to be pretty replaceable to me. Or what else do they bring to the table than an empty hull?

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#42

Post by boeingUH60 »

endymi0n wrote: post #41

Super dumb question: As far as I see, SPACs are usually smaller than the companies they acquire. What keeps a company from just paying out some profit to the founders, them setting up a SPAC themselves from that money, IPO it and then reverse merging the company? Is it time to market? Conflict of interest? Are there limitations to the size difference? I'm just thinking that since the "vehicle" seems to be useful, sho…

I think there'll be major conflict of interest if a founder does that.

The closest thing I've observed to that scenario is Group Nine, a digital media company, which launched a SPAC that it planned to merge with another media company, then merge with itself.

Group Nine, however, recently merged itself (minus its SPAC) with a rival, Vox Media, and hasn't talked about the plans for the SPAC henceforth, but it's suspected that the combined Group Nine-Vox Media will merge with it.

https://techcrunch.com/2021/01/15/group-nines-spac-goes-publ...

https://www.vox.com/recode/2021/12/13/22833341/vox-media-gro...

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#43

Post by boeingUH60 »

codezero wrote: post #16

I’ve been worried the potential 2022 IPO of Quora will be a SPAC.

That site has unfortunately gone downhill. It used to be that Quora had real world experts to answer almost any question with excellent detail. In fact, scrolling through Quora looking at different answers on different topics was a major pastime for me, and I think many others.

However, Quora massively opened their user base (I suspect to justify VC funding) and the quality of answers suffered. Now, I dare not open my feed because it's full of political vitriol on a large scale.

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#44

Post by robbiep »

endymi0n wrote: post #41

Super dumb question: As far as I see, SPACs are usually smaller than the companies they acquire. What keeps a company from just paying out some profit to the founders, them setting up a SPAC themselves from that money, IPO it and then reverse merging the company? Is it time to market? Conflict of interest? Are there limitations to the size difference? I'm just thinking that since the "vehicle" seems to be useful, sho…

It’s not legal to have a target acquisition in mind when you start a SPAC

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#45

Post by jgilias »

boeingUH60 wrote: post #43
codezero wrote: post #16

I’ve been worried the potential 2022 IPO of Quora will be a SPAC.

That site has unfortunately gone downhill. It used to be that Quora had real world experts to answer almost any question with excellent detail. In fact, scrolling through Quora looking at different answers on different topics was a major pastime for me, and I think many others. However, Quora massively opened their user base (I suspect to justify VC funding) and the quality of answers suffered. Now, I dare not open m…

Yeah, for me Quora really went downhill as well. I was a regular reader, also a contributor for things I knew about. Even went to a local meetup once.

At some point I realized that my feed just features opinions from Quora celebrities who are actually just some random people on the internet when you think about it. So I just stopped using it.

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#46

Post by pjc50 »

trophycase wrote: post #40
neilarmstonk wrote: post #11

Earlier quoted context omitted.

Perhaps overly cynical but my take is that there’s little relationship between fundamentals and valuations of “exciting” public companies at the moment, and so acting on any grand theory about underlying value is acting in the face of an unfortunate reality: you could be right… and still lose money. You can find example after example of company that is either vastly overvalued, or vastly undervalued, according to any…

Is that why the most profitable companies are also the most valuable?

But the reverse does not hold true: plenty of the highest priced companies don't make a "profit", in the accounting sense. Such as Amazon.

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#47

Post by enduroman »

robbiep wrote: post #44
endymi0n wrote: post #41

Super dumb question: As far as I see, SPACs are usually smaller than the companies they acquire. What keeps a company from just paying out some profit to the founders, them setting up a SPAC themselves from that money, IPO it and then reverse merging the company? Is it time to market? Conflict of interest? Are there limitations to the size difference? I'm just thinking that since the "vehicle" seems to be useful, sho…

It’s not legal to have a target acquisition in mind when you start a SPAC

Tell that to Jay Sidhu and BankMobile/bmtx. Started his SPAC when the Flagship acquisition of BankMobile was failing. After never being able to dump the asset from Customers Bank, his son's SPAC purchased BankMobile.

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#48

Post by boeingUH60 »

enduroman wrote: post #47
robbiep wrote: post #44

Earlier quoted context omitted.

It’s not legal to have a target acquisition in mind when you start a SPAC

Tell that to Jay Sidhu and BankMobile/bmtx. Started his SPAC when the Flagship acquisition of BankMobile was failing. After never being able to dump the asset from Customers Bank, his son's SPAC purchased BankMobile.

Or Patrick Orlando and Donald Trump, who reportedly discussed their SPAC merger months before Orlando sold shares to investors. But then, I think enforcing this no-contact law will be hard, i.e. difficult to prove unless regulators obtain explicit proof of a conversation between interested parties.

https://www.nytimes.com/2021/12/07/business/dealbook/trump-m...

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#49

Post by xyzzy21 »

endymi0n wrote: post #41

Super dumb question: As far as I see, SPACs are usually smaller than the companies they acquire. What keeps a company from just paying out some profit to the founders, them setting up a SPAC themselves from that money, IPO it and then reverse merging the company? Is it time to market? Conflict of interest? Are there limitations to the size difference? I'm just thinking that since the "vehicle" seems to be useful, sho…

Imagine an IPO for a company without any requirement to make money, follow conventional accounting standards, delivery any actual product. It's an open-ended but legalized form of money laundering and fraud.

Re: The Great SPAC Scam: SPACs a Great Deal for Sponsors, but Not Others

#50

Post by toolz »

enduroman wrote: post #47
robbiep wrote: post #44

Earlier quoted context omitted.

It’s not legal to have a target acquisition in mind when you start a SPAC

Tell that to Jay Sidhu and BankMobile/bmtx. Started his SPAC when the Flagship acquisition of BankMobile was failing. After never being able to dump the asset from Customers Bank, his son's SPAC purchased BankMobile.

It would be hilarious if it weren't so sad how preferential treatment from the SEC is. I wonder if they're just lazy or if there really just is a wall street nepotism club.

Kinda amazing how much trust people put into an institution with the bulk of their net worth that routinely ignores and enforces rules arbitrarily.

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