A Primer on Special Purpose Acquisitions Corporations

Raj Shah
Stoic Point Capital Management

Don’t even think about exiting via a Special Purpose Acquisitions Corporation (SPAC) without listening to this highly informative podcast.

Raj Shah shares a wealth of information about forming and structuring SPACS. The following are among the crucial issues discussed:

  • What kinds of companies are good candidates for SPACs? What should management teams do before traversing the SPAC route?
  • What are examples of sponsor misalignment and inappropriate SPAC capital structures?
  • When do redemptions occur? What is the role of warrants in SPAC transactions?
  • Do SPACs have insider lock-ups? Should SPACs anticipate receiving analyst coverage?
  • What impact do forward purchase agreements and share dividends have on stock trading activity?
  • How do the expenses and required efforts associated with exiting via a SPAC compare with those of an IPO?

Raj Shah, Co-Founder, Stoic Point Capital

Raj Shah is a Co-Founder of Stoic Point Capital Management. Previously he was Managing Director and Partner at Stillwater Investment Management and Partner at Light Street Capital. Earlier in his career, Raj was an analyst with Highline Capital and Greenhill & Co.



Accounting/Valuation, Capital Formation, Investing, Legal




Stoic Point Capital Management


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00:00:59 – The Stoics really adhere to belief that you can’t control everything around you.

So my partner Colin Rose and I, started Stoic Point about four years ago after having previously worked together at a startup fund called Still Water Investment Management.

Still Water managed roughly 300 or so million of AUM, and the gentleman who worked for there, the CIO, decided to retire. Connor and I had been together there for about three years, had really learned to grow the fund, the culture, the investment process, and really enjoyed working with each other covering that portfolio that it only took us a couple of hours.

After our CIO told us he was retiring, he decided to go into business together. And our foundational principles, there’s three of them quality, misunderstanding and self knowledge is really the lens through which we view the world. Quality being how we effectively grade a business, misunderstanding being how we effectively grade an opportunity, and self knowledge being effectively how we create ourselves.

And self knowledge is sort of part and parcel with which goes with calling our firm Stoics Point Capital Management. The Stoics really adhere to believe that you can’t control everything around you, really only your response to those events, in our case, market forces and changes in prices.

00:09:48 – A lot of poor structures and sponsor misalignment and bad companies did come public to the stock market.

That the warrants for the companies that were coming public were generally mispriced and that they were generally undervalued. And so we were able to construct a series of positions and trades owning warrants being short stock, there were some arbitrage trades.

But ultimately, as the market has really evolved and has evolved substantially, as has sentiment, we have grown our portfolio. We launched a separate fund dedicated to stacks as well. Our portfolios in both funds are very stack heavy now. So in our main fund, we have about 13 positions. Eleven of those are D specs. And we continue to think there’s a very high degree of misunderstanding.

A lot of poor structures and sponsor misalignment and bad companies did come public to the stock market. But now where we’re sitting today are kind of in this baby being thrown out with the bathwater situation.

And so we see a lot of opportunity for our investment management firm to own a number of these back businesses that are we think there’s anywhere between 15 to 30 of them that are good, but potentially great businesses that are just kind of being thrown out with the rest of the industry.

00:28:23 – The SEC, I’d say largely intentionally, somewhat unintentionally, has slowed down the process …

The traditional IPO process usually entails several management meetings, a roadshow of sorts, and sort of an institutional show of a company, obviously with in person meetings not really taking place.

The IPO window or the IPO window really closed effectively. And so the spa kind of came in for the time being was effectively much faster because you already had this entity that was public.

You didn’t need to go through a lot of the technical and regulatory things you would have to go through necessarily with a traditional IPO, because you already had a public vehicle that could then go and merge with a private company and effectively bring it public faster. Some of that has changed since, and the traditional stock route has gotten to be a bit slower.

The SEC, I’d say largely intentionally, somewhat unintentionally, has slowed down the process for these facts to come public, taking sort of a finer tooth comb when they’re looking through their filings and coming back with a lot of questions and effectively delaying these things from coming public.

00:34:47 – And the reason those are good sponsors is generally those sponsors have something to offer to the company they’re merging with.

I think, oftentimes an underest questions that should be more important than I think it often is. The answer is the sponsors are all of the above. Everybody you listed historically some of the best sponsors.

And we’ve been involved with businesses we’ve owned well before the SPAC boom, businesses that had done SPAC transactions dating back to 2016, 17 and so forth. Those sponsors, what we would call sort of higher quality pools of sponsors are generally former operators, former CEOs of public companies or private equity board members, people who have real operational experience.

And the reason those are good sponsors is generally those sponsors have something to offer to the company they’re merging with, whether it’s advice on how to become public had a guide, how to conduct yourself, how to oftentimes conduct M and a maybe coming public because you want stock as a currency to use for acquisitions and you want to do a series of them.

Having a sponsor who’s experienced in that is great to have when we have this boom inspect and we’ve had in the last two years somewhere between 304 hundred companies come public and we have something like an equivalent amount of that, if not more still out there searching right now where the clock is ticking.

00:40:16 – There are there are SPACS that are starting to list now in Asia.

So there have been stacks that have listed in Europe. I don’t know if it’s on the LSC or other exchanges. We have not been involved in that many, although one of our core positions was a fact that originally was listed on a European exchange, did its transaction and ended up moving over to US exchange.

So they are there are spacs that are starting to list now in Asia, I think probably in the last six months or so, there have been a small handful in Singapore and Hong Kong, and for all intents and purposes, they are generally effectively the same type of constructing vehicle. But there are nuances around the rules of how transactionally those SPAC work versus the ones in the US.

The US has somewhat kind of a bizarre set up where if you’re a shareholder in a SPAC, you get to heading into a vote. The SPAC has announced a transaction, there will be a vote on that transaction.

You as a shareholder in that spec can decide whether you want to redeem your shares for what is in the trust value in and around $10 or you want to participate in this merger in the US.

00:48:46 –  One very high profile SPAC you may have heard of is the one that President Trump is trying to take his company truth social public through.

So, in fact, SPACS are prohibited from pre identifying their targets before they go public.

So one very high profile SPAC you may have heard of is the one that President Trump is trying to take his company truth social public through. And in addition to a whole set of obstacles in terms of that deal actually ever closing, one of them is a big question around the fact that did that spec sponsor already pre-identify this company ahead of coming public?

And if so, the transaction can’t go through. And so the specs, generally speaking, have historically had two years, 24 months to do their deals. And that’s stated explicitly in their documents.

Now, a couple of things can happen. If two years comes, you get to 23 months and the SPAC still wants to stay alive. They can contribute additional capital to the trust or just ask the shareholders to vote to extend this back. And at that point in time, shareholders can actually redeem their stock and say, look, I don’t want to tim’s up. I’m going to move on.

I’m going to redeem my shares and get that cash for that. If it’s $10 or 10.5 cents, I’ll vote no, and I’ll redeem and I’ll get my cash back.


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