Smackdown on SPACs
I experienced an interesting confluence of events yesterday. First, The Wall Street Journal ran an article on the smackdown SPACs received over the past few months: the 137 mergers closed as of mid-February lost 25% of their value. Then, yesterday evening at a high school football game, I ended up sitting in front of United Wholesale Mortgage CEO Mat Ishbia, who took his company public via a merger with a Special Purpose Acquisition Corporation, or SPAC.
The first thought that struck me sitting there watching the two teams warm up was, “Huh, Ishibia’s a football fan as well as a basketball guy.” The second, and more important thought for my professional purposes, was that the demands of SPAC investing differ little, if at all, from those of investing in any other security: one still needs to do their fundamental work. Grouping UWM, which offers tangible and substantial sales, earnings, and even dividends, in with many of the other pre-revenue SPACs does both groups of companies significant disservices. As investors sort out the SPAC universe, including UWMC, I anticipate they’ll experience long-term winners and losers, similar to the balance of the universe of investable securities.
I predict that investors doing the old-school analysis on potential addressable markets and sizes, prospective sales into those markets, and projected earnings and cash flows from those sales, will enjoy better outcomes than those who do not. However, as I’ve not completed this work on UWMC, I’ve got no thoughts on its investment merits and therefore, offer no opinion on its shares…