Should You Invest In A SPAC? | Erik Averill, Brandon Averill | AWM Insights #23

Recently in the headlines, we’ve seen a lot of attention around SPACs (special purpose acquisition company) due to some big names in the investing world doubling down on them this year. So far in 2020, 60 of the 95 IPOs in the US have come from these SPACs and they’ve raised $24 billion further cementing them as the preferred method for going public this year.

So what exactly are SPACs and should you be investing in them? These special purpose acquisition companies are essentially shell companies that raise money from public markets to buy a private company. They have some very interesting characteristics to them that provide some advantages such as lower cost and some flexibility, and disadvantages like the fact that you’re essentially putting all your trust in the management team of the SPAC.

In this week’s episode, Brandon and Erik discuss SPACs and cover questions and topics like:  

• What is a SPAC?
• How do they work? What are some of their unique characteristics?
• What are their advantages and disadvantages? Are they considered a good investment?
• What is behind their recent surge in popularity?
• What should you consider before investing in a SPAC?
• Should you expect similar returns with SPACs that you’d see in the private markets?
• Ultimately, we would say ignorance is not bliss in investing, but a danger. Like any other single entity investing, we recommend our clients do their research and discuss with their financial professional about how it might fit in their investment portfolio.