Thoughts on SPAC's - Stocktrades Canada

Hey guys I realize you concentrate on Canadian stocks but I’d like your opinion in general on SPAC’s specifically those that have definite agreements in place and proven management teams that have past success in this process. It seems to be a huge trend to get into the U.S. markets rather than going the traditional IPO route. I know many like to buy into SPAC’s to possibly make short term profits but I would think that this would be a good way to get in on the ground floor of a previously established successful private company. What are your thoughts?

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Asked on July 15, 2020 4:52 pm

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Hi there,

SPAC's have been all the rage lately. Its not the first time they have hit the markets with considerable fanfare before fading into obscurity. Will this happen again? Not sure, but I am always weary of big momentum and trend investing.

That being said, SPAC's are an interesting alternative to IPOs, but they are purely a bet on management. If management doesn't execute, then you have essentially wasted your time. If you purchased warrants, then you lose everything.

In Canada, there is only one SPAC listed Bespoke Capital Acquisition Corp (TSX:BC.U). Unfortunately, it is focused on making an acquisition in the Cannabis sector, which in my opinion makes it unattractive. It will be insteresting to see if other SPACs in Canada start to pop up. As mentioned it was popular a few years ago, but not anymore.

If you are going to invest in SPACs, stick to those with management teams that already have a history of successfully executing on prior deals. Secondly, stick to the majors players. Research has shown that the top 10 biggest SPACs tend to close deals and perform well, while the 10 smallest tend to have deals fall through and fail to close.

Mat

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Posted by Mathieu Litalien

Answered on July 16, 2020 5:30 am

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