The Rundown (3/2/21)
Welcome to The Rundown! Each week we’ll feature a couple talented guest writers to give their thoughts on whatever is happening in the markets right now.
One of our guest writers this week is SPACdaddy.com. Please be sure to also give @SPACdaddy a follow on Twitter!! He’ll be sharing his thoughts about the market reset and some opportunities you have near NAV.
As we approach 400 active SPACs, I managed to sift through most of the junk and organize 180 solid to excellent SPACs still in the safe buying range. I learned a few things in the process:
Some SPACs will never go below $11-12. $DGNS, $BTNB, $AJAX… these are run by the best management teams in the business. They’re not going to reach the floor unless they merge with complete junk.
SPACs with <$200m in trust aren’t all bad. In fact, some SPACs with too much in trust may even be worse. Many SPAC owners take a 20% cut for merging with a company. So the larger the SPAC, the more % the owner gets. This changes their incentive from merging with quality to merging with quantity.
It’s about the PIPE, not the hype. It doesn’t matter about cash in trust, it’s about their access to capital. A PIPE can be bigger than the trust size. If they can get the $, they can get the epic merger.
In order to get the best deals, you’ll have to buy Units during the first 45 days of IPO, aka the Greenshoe period.
5 Steps to Buying Units:
1. Download a quality brokerage that doesn’t rhyme with Shrobinhood. The reason for this is because you need to have a brokerage with customer service that will answer your calls. Common brokerages include: Schwab, TD Ameritrade: Think or Swim, Interactive Brokers, E-Trade, Fidelity.
(If you want more info on which brokerage to choose, DM me on Twitter @SPACdaddy or elsewhere & I’ll tell you which one is the move for you)
2. To find units of your favorite SPACs, search the ticker and click on the one that has a U .U or /U. For example, if you’re looking units of Goldman Sachs Acquistion Corp (GSAH), it will look like GSAH/U. Warrants will look like GSAH/WS and the commons are just GSAH.
3. Look up what fraction of the Warrant is in the Unit. Usually it’ll be 1/2w to 1/5w. If you buy GSAH/U, which have 1/4w, every 4 units will yield you 4 commons and 1 warrant (4 units * 1/4w = 1w, 4 commons). It’s very simple once you understand the math, don’t overthink it.
Some more basic math: If you buy 4 shares of GSAH/U for $12/Unit, that means you are technically paying ~$8 for each warrant (SPAC common = $10, 1/4 Warrant = $2, so 4 units * 1/4w = 4 commons & 1 full warrant). Now technicalities don’t always matter because sometimes theres a discount/arbitrage play to be made. A unit can be trading at $12.50/U while the common is at $12.20/share… so basically the fractional warrants just serve as the cherry on top.
4. Next up, find the SPAC you like during the greenshoe period and buy Units. After the 45-52 day greenshoe period is over, the SPAC will announce the “Separate trading of it’s shares” aka splitting the units into commons and warrants. This is when Robinhooders flood the commons and jack up the price. Essentially, this is a way to get in before the madness.
5. The greenshoe is over after 45-52 days and it’s time to split your units. Call your brokerage & repeat these magical words verbatim:
“PLEASE MAKE A CONTRACT REQUEST TO THE RE-ORG GROUP TO SPLIT MY SPAC UNITS OF _ _ _ _ /U”
There you have it folks. Your units will split into commons & warrants in 1-2 business days and you’ve managed to buy SPAC shares before the Robinhood hype.
Later this week I’ll be sending out SPACdaddy’s Guide to Units at NAV – stay tuned!
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