When it comes to investing in specialized acquisition companies, or SAVS, there are plenty of choices. So how do you separate the long term winners from the rest of the pack? In this fool live Video clip, recorded July 12, Fool.com contributor Matt Frankel, CFP, and Focus on industry Host Jason Moser talks about the one factor that turns out to be the best predictor of PSPC’s long-term returns.
Jason Moser: Matt, we talk a bit about PSPCs on this show, we even aired a four part series on PSPCs earlier this year. I had a lot of fun putting together these shows. You and I were talking about an article we just read here on CNBC regarding PSPCs. There was some interesting data from Wolfe Research in this article, it was talking about the performance of PSPCs. I think it’s basically about a year here. But these data from Wolfe Research indicate that, on average, the SAVS with experienced sponsors register higher returns since by the sponsors, it is the blank check company that introduces the real company into its universe, to make it. public. We want to talk about this for a minute, just from the larger SPAC perspective and what do you think of this data, what do you think it says? Then also talk a little more. There is one specific SPAC that has been in the headlines here in recent days, Galactic Virgo (NYSE: SPCE), for obvious reasons, a successful flight in space. But let’s go ahead and start with the broader implications here. Because it doesn’t sound that surprising, but at the same time, it feels like it’s still a very short timeline to be judged on.
Matt Frankel: It does and I think what they are trying to argue is that the market has been inundated with SAVS. I have some statistics here. In 2018, 46 PSPCs went public, in 2019 there were 59, in 2020 there were 248.
Moser: The sacred cow.
Frankel: Already in 2021, they were 367.
Frankel: The market was inundated with them. In the old days, when you were a sponsor of SASP, it was because you knew something about the business or industry that you were trying to pursue. Now it’s like everyone with any credibility is starting a PSPC, Shaquille O’Neal has their own PSPC.
Moser: I was going to say you don’t even feel like you really need that credibility. All you need is a name.
Frankel: Unless he was trying to go public with the Los Angeles Lakers. I really don’t know how his experience would come into play.
Moser: Or Papa Jean‘s (NASDAQ: PZZA) maybe i could see at least one pizza place because he’s on the board of papa john’s i still think-
Frankel: He owns a lot of Five Guys.
Moser: It’s rather good.
Frankel: But I love Shaq, so nothing against Shaq.
Moser: Yes. Me too.
Frankel: But the point is, and it’s really one of the things that I’m looking for, everyone always says, how do you choose all of these PSPCs? There are 400, how do you decide which three to put in your wallet? This is one of the things that I watch. Remember Latch (NASDAQ: LTCH) we had at the show, they will make it public through an innovation acquisition from TSI sponsored by Tishman Speyer, one of the nation’s largest commercial real estate companies. He is clearly a sponsor who knows a lot about this industry, he is a good partner. In PSPCs, the partnership aspect is really undervalued. The celebrity aspect is getting too much attention and the partnership aspect is getting too little. Think of The Motley Fool’s investment strategy, how we want partner companies. We want companies where the CEO is a partner of their shareholders. When I was hired here, they told me that we would rather have a good partner than a great writer. It’s such a valuable part of business in general, and it’s become undervalued throughout the PSPC craze just because of all the big names throwing their names away and not even like sharks like Bill Ackman and Chamath [Palihapitiya].
Frankel: Chamath worked at Facebook (NASDAQ: FB), has he ever started a space travel business? No, this one is well done. But this is the exception, not the rule according to this research.
Frankel: There are a lot of successful SPACs that have partnered with people who know this industry very well. I mentioned Latch as a great example, 23 and me (NASDAQ: ME) you can safely say that Richard Branson has a lot of experience with consumer branding and things like that. I don’t think he did any genetic research himself, but that’s not really the issue, he’s a consumer products business at this point.
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