Pattie Lovett-Reid: What are PSPCs and should investors care?

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Pattie Lovett-Reid: What are PSPCs and should investors care?


HUNTSVILLE, ONT. – Let’s start with the basics.
Special Purpose Acquisition Companies (SPACs) are often referred to as blank check companies. They don’t have specific business plans and their main goal is to merge or acquire a private company at some point – usually within a two-year time horizon. If an agreement does not come about, PSPC must be dissolved and the proceeds returned to shareholders.

These are not new products – they have been around for a few years – and yet their popularity continues to grow.

Many companies would like to be listed on a prestigious stock exchange and have access to the financial markets, but the process of getting there is long and expensive. It could take a few years for an initial public offering to work its way through the system, while a PSPC can be completed in six months or less.

Another key distinguishing factor in this product: As a PSPC does not physically own any assets, anyone who decides to invest in it places a bet on the founder of the fund. In other words, they are betting on a founder with the right connections at the right time to bring an exciting new business to market.

Traditional IPOs have been in decline for some time. Companies with high brand awareness, including Uber, Airbnb, and DoorDash, have chosen to stay private until they grow into multi-million dollar businesses. The result is that the retail investor misses out on the initial gains. A PSPC allows them to enter early and is a cheaper, faster, and less intensive way to gain investor attention.

But is a PSPC right for you?

For starters, in my opinion, no investment is right for you unless you know what you’re invested in.

I reached out to Paul de Sousa, Senior Vice President and Investment Advisor at Sightline Wealth Management, and asked him what a newbie investor should look for.

He suggested a PSPC portfolio, professionally managed by someone with excellent transaction flow and a conservative strategy. The key is the price of admission, he said. Most investments can go all the way to zero, whereas a SPAC has a net asset value of $ 10 and returns investors’ money if they are not interested in acquiring.

Provided the managers buy at the IPO and there are warrants – free shares – or partial warrants to soften returns, this reduces risk.

The risk is greater when SPACs are purchased at a premium in the secondary market. If the acquisition is not well received, it will trade lower or below the confidence value.

PSPCs are hot because the traditional IPO model is expensive, expensive, and time consuming. Since the start of the year, there have been 280 SPAC IPOs, already more than in 2020. One more thing to mention: this different new option will not only attract the attention of investors, but also that of regulators. .

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