SPACs, special purpose acquisition companies, are really hot right now. These vehicles, which offer a way to pool capital and invest in one or more companies that are taken public, have actually been around for decades. But, until about 2016, they didn't have the same energy behind them as they've had recently. That sudden interest and multi-billion dollar momentum can be attributed to a combination of large pools of excess capital to invest, low interest rates and high multiples that are being paid for companies as a result of euphoric stock markets.
“It’s like all the stars lined up,” says Greg Skoda, a senior partner at Marcum LLC.
Skoda knows a lot about SPACs. The accounting and advisory firm he’s with represents more SPACs than any other firm in the United States — something like 750 SPACs, he says.
For many business owners, SPACs present a ground-floor opportunity. Once public, the stock price of their company could increase significantly, offering more of a return than if the owner sold to or partnered with a mature company.
SPACs, however, aren’t a guaranteed success. They’re speculative in nature, and not all of them will find their way into the right investment, in which case the pooled money will go back to investors, with interest.
Skoda says there are still huge pools of capital out there looking for the right opportunities. While there has been somewhat of a slowdown recently in the volume of SPACs created each month, he says there's no signal that would suggest it's time to get out of SPACs.
“It's crazy out there,” Skoda says. “The professional service firms around the country that do this work, many of them are maxed out and can't do more. It's one of the few times that there's a fair number of firms that do this work, legal firms and accounting firms, who say, ‘I just can't handle another one,’ because there is so much work involved in this area.”
On the Smart Business Dealmakers Podcast, Skoda offers a lesson in SPAC fundamentals — what they are, why they’re so insanely popular right now, and what sellers and investors should know about them before getting involved. Hit play below to hear the full interview.
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