Fantasy gaming company DraftKings CEO Jason Robins thinks the special purpose acquisition company (SPAC) market might be getting a little too big and hopes it will “settle down,” he told CNBC.
His comments come as a deluge of SPAC investments from people like hedge fund manager Bill Ackerman, Oakland Athletics general manager Billy Beane and former Trump administration advisor Gary Cohn have backed SPACs, among other big names.
DraftKings itself decided to reverse-merge into an SPAC, which led to a windfall in valuation, from $3 billion in April to over $13 billion now.
But Robins said he doesn't think the idea is for everyone.
“Hopefully the market settles down a little bit there,” he said on the CNBC program “A View from the Top.” “I think there are a lot of SPACs now. Some will do well and some won’t. For the right companies, SPACs are great vehicles, but it’s not a fit for everybody. It’s not a fit for every company.”
An SPAC is also known as a “blank check” acquisition fund, a development-stage shell company without development plans, intended to merge with a company that does have them. Private firms can use an SPAC to go public without filing with the U.S. Securities and Exchanges Commission (SEC). By staging an initial public offering (IPO), they can raise money to buy promising private companies.
The SPAC boom began earlier this year as DraftKings and Nikola saw surging valuations after going public through that method. Investment professionals began to see it as a viable method for making money.
An SPAC usually targets and acquires a company in two years, skipping over the process of going through an IPO. There are a number of factors going into whether a company would use this as a method of going public, CNBC writes, the most important being finding a balance between the investor base that has funneled money into the company with the needs of the company itself.
But the increasing number of SPACs is leading to lower-quality shell companies without the same breadth of wisdom and knowledge about how to make money, said Bennett Schachter, Morgan Stanley’s global head of alternative capital solutions, as quoted by CNBC.
He said it was important “to leverage the skill set that the particular SPAC has” for it to do well.
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August 31, 2020 at 10:19AM
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