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Things look very grim for SPACs spearheaded by some of your favorite athletes, as these special acquisition blank check companies tied to notable sports figures have been severely trailing the S&P 500. Shaquille O’Neal, Colin Kaepernick, Jay-Z, Serena Williams, Alex Rodriquez and Steph Curry have all recently gotten into the SPAC game without much success. Specifically, 21 out of 33 SPACs tied to famous public figures have posted negative returns for 2021, according to Bloomberg.
The Breakdown You Need To Know:
The De-SPAC Index, a group of 25 companies that went public by merging with a SPAC, is down more than 40%. CultureBanx breaks’s down exactly whose SPACs are underperforming. Beachbody, backed by Shaquille O’Neal, is down over 77% since going public in a $2.9 billion deal in January. Metal 3D-printing company Velo3D, which Serena Williams helped take public, has fallen nearly 32% since its January SPAC merger.
Interestingly enough, the SPAC market remains on fire and during the first three quarters of 2021, SPAC merger deals totaled $370.6 billion. This number is more than double the $139.4 billion in deals for all of 2020.
SPACs launched in part by Kevin Durant, Alex Rodriguez, and Colin Kaepernick, have yet to merge with another company and have shown little stock price movement. Durant’s ‘Infinite Acquisition’ SPAC actually eked out a modest loss of 0.03% in 2021, while A-Rod’s ‘Slam’ and Kaepernick’s ‘Mission Advancement’ SPACs lost 1% and 2.5% respectively. Overall, the IPOX SPAC Index, a basket of 50 de-SPACs as well as SPACs that haven’t found a partner, slumped around 16%, according to Bloomberg.
Sketchy SPAC Playbook:
It’s not just athlete-backed SPACs that performed pretty dismally, also entertainer-backed SPACs were poor performers as well. If we take a look at rapper and business mogul Jay-Z, his cannabis focused SPAC, The Parent Company, performed the worst with an 84% plunge.
Perhaps the SPAC sectors main downfall stemmed from being overrun by nearly 600 new and mostly undistinguished blank check companies. Herein lies the problem as Harvard’s Law School points out that SPACs are a cheap way to go public, they are right, but only because SPAC investors are bearing the cost, which is an unsustainable situation. Although SPACs issue shares for roughly $10 and value their shares at $10 when they merge, by the time of the merger the median SPAC holds cash of just $6.67 per share.
Situational Awareness:
The SEC has sounded the alarm on SPACs that nearly anyone can start, which have enticed a cross-section of big named athletes, activists and Wall Street executives. “It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” the commission wrote on its website. The SEC goes on to state that Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss.
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