Odd Lots - Why Blank Check Companies Are The Hottest Thing This Year

Episode Date: September 10, 2020

SPACs have been around a long time. The basic premise is that a group of people raise a bunch of money from public market investors, with the premise of then going out to buy a specific, individual company. They're seen as an alternative to IPOs. While historically they've had a reputation for some questionable deals, this year they've been booming. All kinds of big names like Bill Ackman and Paul Ryan (yes, that one) are getting in on the action. On this episode, we speak with Kelly Driscoll, one of the founders of the SPAC Fusion Acquisition Corp, who explains why these entities are so hot right now.See omnystudio.com/listener for privacy information.

I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets, from corporate law to constitutional law, and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars and policy experts to break down what the rulings really mean. We do this every weekday,

then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. On the East Coast, listen as you start your day, and on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. Hello and welcome. to another episode of the Oddlots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, you've heard of SPACs, right? Yeah, I absolutely. I've heard of them. You know, I've heard about them for a while, so-called blank check companies, but they've definitely been one of the big stories of 2020, especially in the last couple months. Right. And for those that don't know, SPAC stands for

a special purpose acquisition company, and they're basically these blank chequechews. firm's shell companies that set out to buy other companies and make money off of them. And it's a way for people to get involved with those companies without the companies actually having to IPO in the public market. Right. And the interesting thing is that the SPAC is public right away. So the SPAC does the IPO. It trades. And so, of course, there's always a lot of, you know, there's venture capital and there's

private equity. There's always companies that are financial companies that are buying other companies. But this is a situation in which the buyer, the shell goes public. It raises money in that offering. And then it goes out in search of an actual real business to buy. Right. So you're sort of pre-funding acquisitions and you don't know what they are going to be exactly. Now, the funny thing about SPACs is like I don't remember that much about them. before 2008. I don't know why, but apparently that was the last time that everyone was talking about Spacks, right? Well, I think that's right. And I think that they do historically have this reputation because of, you know, when you hear like blank check company, you hear like blank check that typically

doesn't have like historically great connotations in anything, but you hear like blank check company and it's like, wait, I'm handing money over to this company and I have no idea what they're going to do with it, except that I hope they're going to make a good acquisition. So historically, I think they have sort of a questionable reputation, although part of our discussion today is that changing, but it also tends to be the case that they're associated with periods of, you know, boom, speculative periods. And so you mentioned pre-crisis period, last crisis, and of course you mentioned now. And, you know, historically, they do seem to be associated with periods of speculative of appetite, shall we say. Yeah, exactly. I mean, the term blank check company kind of screams too much

money in the system, doesn't it? But you're exactly right. That's the big debate now. We saw lots of SPACs before the 2008 financial crisis kind of kicked the air out of the market's tires, and now SPACs are coming back. I think so far in 2020, we've had over 65 deals for something like $24 billion. Everyone's talking about them. There's all types of different structures. Some are more controversial than others. But the big question is, is this a sign of some sort of excess in the market? Are we actually protecting investors through these structures? Or is this a way to funnel money to sponsors or corporate owners? So today, we are going to dig into all of those questions. And I'm really excited to say we have Kelly Driscoll. She's a board director at a SPAC called

Fusion Acquisition Corps. She's also a longtime executive over at State Street Global Advisors. So we're really happy to have her on. Kelly, welcome to all thoughts. Thank you. It's a pleasure to be here with you today. So Kelly, maybe just to begin with, could we maybe discuss why SPACs are experiencing this resurgence now? Why now at this moment? Sure. I think the big why now is the volatility in the market. So certainly with the coronavirus and here in the U.S., the uncertainty around the upcoming elections, there's incredible volatility, which tends to be puts a damper on traditional IPOs with that much volatility. And so SPACs are an alternative to IPOs. It's a way for private company. to basically go public by being acquired, as Joe had mentioned, by a SPAC that is already publicly traded.

And to go back to some of the comments that you made on the evolution, you're absolutely right, that one of the reasons you maybe haven't heard of them since the early 2000s is because that's when they received a lot of mixed reactions and had some mixed reputations in the marketplace. But there were some regulatory and listing changes in 2011. The regulations made it easier to approve acquisitions because the acquisitions in the end have to be approved by the shareholders of the SPAC. And then in 2017, the New York Stock Exchange revised its listing requirements

to mirror NASDAX requirements. So you saw more SPACs listing on the New York Stocks. exchange. But kind of going to what you said, why now, why so much? Because the IPO, the traditional IPO market has really not closed down, but there's been such a damper on it that companies looking to go public are looking for alternative, alternative vehicles. I want to dig into that. There's so much I want to dig into. But let's just start with, for people unfamiliar with the sort of simple, structural, governance mechanics of how it works. The fundraising process, why people agree to lock up money

with a management team, the obligation on that management team, and then how that decision comes to in terms of selecting a company to essentially buy out, just like sort of walk through the basic spec step. Sure. So basically, you start with a sponsor who decides that they really want to set up a SPAC and they basically get what we call founder shares or what sometimes is referred to as the sponsor promote. So they have founder shares in the SPAC. Those are the first shares that come in. And then they file an S-1. They go through the steps of having the SPAC go public with the traditional underwriter. The units are then offered in an underwriting and they typically are offering. offered at $10 a unit. We can talk about Ackman's SPAC later on, but the typical structures,

they're offered at $10 a unit. The public has, including retail investors, have the ability to buy those public shares. And usually the units consist of a share and a fraction of a warrant. So, and the warrants are typically exercisable at 15% above the IPO price, so $11.50. So that's the structure, if you will. The reason somebody might invest is because, as you know, in a traditional IPO, it's very hard to get an allocation in an IPO. So retail investors can invest in a SPAC. The money raised in that IPO goes into a trust. So there's some downside for investors.

The trust holds the cash until the SPAC comes back with a. merger acquisition and puts it to the shareholders. If the shareholders don't like the acquisition, they can say, I want my money back. They can redeem their shares. Even if they vote for the acquisition, they still have the ability to redeem their shares. So you can a SPAC provide some downside

up until the time of the business combination. And you're right, Joe, that you're kind of locking your money in for a period of time until the SPAC sponsors find the right opportunity and present the acquisition merger to the shareholders. You mentioned the initial sort of SPAC investors also get a warrant, so a right to buy further shares of the company at slightly above the offering price. Is that sort of like a compensation for the sort of time value of money? of locking your money up while the board or while the additional sponsors can spend up to two

years looking for a company? Yeah, and that I think, as you say, gives investors, you know, more potential upside if the business that they've acquired does well over the long run. So they get a little more upside. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it. all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews, all the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle,

people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays, we speak with journalists, columnists and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. So you mentioned why investors might be

interested in this structure, it gives them companies that might be otherwise very difficult for them to have access to, especially in an IPO process where, you know, the initial allotments are going to go to very big investors like, you know, mutual funds. And you mentioned the role of the sponsors and, you know, sponsors get these sponsor shares and most of them seem to be well compensated for their role in these companies. But what's in it, what's in it for? a company that is being bought by a SPAC or a company that is reverse merging into a SPAC? Why do they do it instead of doing an IPO, for instance? That's a good question.

Really, for the target business and its owners, one, if you look at today's market, it's the ability to go public during periods of market instability. So you have access to public capital. You can raise money to fund growth or raise money to fund your operations. and you can do it with much more certainty. So SPACs, once the SPAC identifies the target and starts having negotiations with the target, it's a negotiated deal. So the target business, the business owners have much more say in the structure of the company going forward,

how much of their equity investment are they willing to roll into the company? what's the price. So, you know, they usually in a traditional IPO, there's really no, no ability to negotiate price. So it's all a bit of a negotiation with a SPAC, which can be very comforting to a company that's going to go public. And the other sort of big benefit for the target business is you can include financial projections, which you can't do in a traditional IPO. So in the proxy statement that goes to the SPAC shareholders to vote on the deal, whether they want to prove the deal, whether they want to get their money back, that can include financial projections and forward-looking statements, which is not allowed in a traditional IPO. So when you look at some

of the sort of larger, if you look at some Virgin Galactic or drafting, it gave them the ability to show what the company is going to look like or might look like over sort of multi-year projections. Right. So this is where I have to like ask like a sort of like cynical question because you say that, you know, this is a volatile market and so SPACs offer another route to going public. But on the other hand, this is one, some people might say this is a volatile market, but another way to say that is that this is a sort of euphoric market and that if you were a company that was in enterprise software or cloud software or autonomous vehicle tech, there is extraordinary demand in this. market for equity issuance. And so is it really about, okay, this is a path to the market in a

market that maybe doesn't have the appetite, or is it about there's a bunch of people that are pouring money and despeculative bets, a lot of retail money in this market. I mean, that's been one of the extraordinary stories of 2020. And if you like want to like sort of tap some of that retail money and you want to be able to give projections, which you can't do in an S-1, and say, here's our hockey stick growth about our total addressable market for autonomous vehicle tech going out to the year 2040, that this is sort of an easy way to get less sophisticated money. I actually think it is a little bit of both.

So I do think when you look at the SPAC market right now, I know Tracy mentioned the numbers, which day-to-day are changing because there's so many specs. So I think the numbers are now over 30 billion of capital raised by spec, over 75 IPOs by SPACs. That compares to 13.6 billion raised by 59 SPACs in 2019. And the average size of SPACs has grown just since last year. So I'd say if you look at the numbers, particularly in July and August, it's not just a hot market, but arguably somewhat overheated.

So there's been such a flood of new SPACs on the market. And as you say, looking for a lot, looking for a technology place. So where is there going to be substantial growth in a private company that we can bring to the public market? And yes, the investors in the SPAC are really betting on the SPACPAC management, team, this backboard and management team to bring a high quality. And in most cases, they're looking for a high growth company that they can bring to market. To Joe's point, can you talk a little bit more about the differences in pricing or valuing companies in a SPAC structure versus a traditional IPO process? So when I think of an IPO, there's sort of this

whole ecosystem of people, you know, the underwriters, the potential investors, there's consensus building around the valuation. As you mentioned, no one really knows what it's going to be until it lists and then it starts trading. And usually people are expecting that first day pop. And the criticism of that is that it means that the company itself has left money on the table. But the SPAC process is much more certain. Again, as you pointed out, like you know what the valuation is, but it's also much more confined. So I guess what I'm asking is, is the SPAC structure a way to, for, for companies to raise more money than they would in the IPO process?

Yes, I think there's more opportunity to avoid that significant potential underpricing in a traditional IPO where, where the underwriters and the larger, investors are sort of pricing in that ability to pop. I think in 2020, the average in a, the traditional IPO was like 31% below market. And they are. I mean, that's the way a traditional IPO is set up to see that big pop. Whereas here, I think particularly with the significant number of SPACs in the market right now, looking for targets, the targets are in a better position to negotiate favorable terms and negotiate that price so that they can maximize the amount of capital that they can raise. And that, I think, is what we're starting to see now

in the SPAC market. I mean, there's still thousands of targets, so there are lots of companies out there, but they're definitely in a better position to negotiate. I heard somewhere that some of them are even having these what they call spack offs where they bring several spacks in and have sort of a you know a beauty contest if you will actually can you clarify that so the private company chooses between specs is that what you're saying no i mean the spack goes out and looks for for a target you're right got it but what i'm saying is what i've heard is i mean there's so when you think about it with all of the SPACs right now looking for targets, you have to imagine some of the high-tech and high-growth companies who might have gone through more mature

financings and are just about ready to, you know, thinking about going public and maybe you're thinking about a SPAC as an alternative. If they're getting calls from several SPACs, they might have the ability to say which one do they think they want to go with and which one do they think they can either get the best terms with or will be a really solid partner. So this actually leads into something I was wondering. So, you know, if a company is getting lots of different approaches from lots of different SPACs, are all SPACs created equal or how would they be choosing which SPAC to partner with? And I guess what I'm getting at is, are SPACs a sort of neutral vehicle to take companies public, or are they more about a business

partnership with a sponsor? That's an excellent question. I think they really are more about a business partnership. So what does this SPAC team bring to them? So when I look at the SPAC fusion acquisition, our focus is predominantly the fintech and asset and wealth management area. And one of the reasons is the SPAC team that we have that we put together are all from that background.

So we have financial experience, we have investment experience, we have ETF experience, fintech experience. So our focus and our expertise is really in that space. And that's what we think we as a SPAC team, a fusion application. acquisition bring to a potential target is some of that some some some some main recognition some significant experience some you know perhaps more seasoned experience in developing strategy and some new products so that might be attractive to a target to have some of that season experience come in and and whether that's in the form of it

being on the board or an advisor, helping them with their strategy, really exploring their growth story. How do you get paid? So ultimately, in theory, Bill Gurley, the venture capitalist, he's been very critical of the traditional IPO process for quite some times. And he says, like, SPACs are clearly better. The company doesn't give up that big pop to investors. This is like a real, a good avenue. And so my question is, okay, let's say I'm buying into your SPAC as an investor, and I'm trusting that you're going to make a good acquisition, a good use of my money. What ultimately determines you and your other partners who are involved in the SPAC in terms of how much you make? So the traditional SPAC, when I mentioned earlier founders shares, the traditional SPAC, basically the founder's shares are purchased for a nominal amount.

And those founder shares usually equate to about, but with warrants equate to about 20% of the company being acquired, you know, post the business combination. So there's significant opportunity for the SPAC sponsors and the directors and the management to make money, 20% of a company, especially a potential growth company in, you know, when I say short term, maybe, you know, in the sixth to one year term and in the longer term as well. So particularly with the warrants. Is there a minimum lockup? So like, for example, I'm looking at the chart of Nikola, it's that's very sort of infamous or popular electric truckmaker.

They had a $36,000 in total revenue last quarter, market cap of about $14 billion. So there's another debate somewhere else about that valuation, but that's not the. point. My question is, whoever did that SPAC, whoever found that company and brought them public, are they in a position most likely to instantly be able to cash in? Or do they have to, are they locked up for a while such that ultimately, if this just turns out to be a temporary pop and the company does not turn into the next Tesla, they don't get paid? Yeah, they're typical, and it's all sort of negotiated in the structure in the, in the original structure, but there are typical lockups. And some of the terms are changing. When I mentioned

the 20% of a company, when you look at Ackman's Persian Square-Tontine, which was the biggest SPAC IPO so far, he raised $40 billion. $4 billion, I think. Oh, yeah. I mean $4 billion. Did I say $40? I'm sorry. Yeah, I was like, whoa, I was completely off base. Yeah, $4 billion. No, no. That would be hard when only 30 billion has been raised in total, but yes, $4 billion. What's fascinating about what he did in his spec is he did not put in founder shares. This is what I understand. So instead of founder shares, the sponsors and directors purchased warrants. And they're exercisable, I believe it's at three years after the business combination for about 6% of the equity of the combined business. And I think that exercise prices at about 20,

percent above the IPO price. So as I mentioned, you know, the traditional structure was 20 percent of equity with with the warrants. And now we're seeing, you know, changes to that structure. And I think we'll continue to see changes to the structure, particularly if the number of SPAC IPOs continues to grow and the universe of targets, you know, it was. looking for a spec that maybe wants to be in, you know, in it for the long run or, you know, take less less of the equity off the table. So the criticism of the sponsor shares was that the sponsors kind of get them up front and because they immediately get 20% of this company, they have a reduced incentive, I guess, to go out and spend a lot of time finding a quality

business, like they've already been paid. So, uh, Ackman's innovation is that you get rid of the founder shares, you keep the incentives aligned with the investors. Uh, is that right? I think that's right. I mean, I, I, I hear that criticism, but when I think about our spec, this is, we are rookies in the spec market, our team. And we have, uh, solid reputations. As I said, we're, you know, all seasoned executives. And so for us, it's about our reputation as much as it is, you know, to see if we can benefit from this in the long run financially. So we want to get a really good SPAC deal.

We want to do a good deal. And I don't think most SPAC are out to find, you know, sort of a paltry Jill just to try and make money in the short term. I could be wrong about that. I mean, there are so many out there. But when I look at it, I think, well, it's really important for us to get a quality deal. So there's been a lot of specs, obviously. And what's interesting is that in addition to sort of seasoned dealmakers and financial types,

we're also seeing the rise of sort of quasi-ce celebrity specs, Billy Bean, who was profiled in Moneyball, is doing a SPAC, former Speaker of the House. Paul Ryan is doing a SPAC. when you go out and you are trying to raise money, what's the pitch? What is the, why should, you know, this sort of typical, you know, if you're not Ackman, if you're not a household name, how do you pitch yourselves and say, you know, give your $10 a share to us as opposed to the hundreds of other SPACs available out there? For Fusion acquisition, we really look at our team.

We think we have a strong team. We have experienced management. Our management board team has, as I mentioned, financial services, fintech, asset management. We have M&A experience, product innovation, operational expertise. So we think we can be a good partner to a potential target. And I think that comes out. We are obviously in the process now looking for a target, and so we've been talking to several companies.

I think that comes out in the dialogue that we have with the companies. it's sort of like a dance, you know, is this going to be a good fit for both sides? Or do we think we're finding a quality team with a proven business model? And we're looking, you know, obviously for a very strong existing company. You know, we want a strong team that has the ability to grow, but has proven some of their, you know, their business model and strategy. So we think we bring perhaps some seasoned experience and expertise to that management team. And that comes out in the dialogues and the due diligence we do and the questions that we ask. And I think that's where you hopefully will be successful in that dance.

Now, when you look at some of the more well-known SPAC sponsors, you see in the past there have been several, you know, huge sponsors with them. big home runs. But, you know, not with with the amount of SPACs that are out in the market right now, not everyone's going to be a home run. And I think in the end, investors might benefit from singles and doubles. And that's where maybe you asked Billy Bean about. You know, in this entire conversation, I keep thinking, I keep thinking back to venture capital. So, you know, we're talking a lot about the importance of the quality of the sponsors of the management team, what the sponsors can bring to the table for both investors and

the company itself. And to me, it sounds a lot like the venture capital model, you know, where the venture capitalists kind of go out to Silicon Valley and they have these lengthy conversations about making investments in these up-and-coming tech firms. And they're all sort of fighting for the same targets. Why start a SPAC as opposed to just set up a venture capital firm and invest that way. I think a SPAC is really more of a late stage venture cap financing. So you know, you're not getting in at the earliest stages, but you're getting in when the company might be ready to go public.

And that's what you're really looking for is somebody who's sort of at the late stage venture venture financing who needs, who's looking for the benefits. of going public and having access to liquidity and public capital. And so that's really, it's kind of replacing, if you will, or competing with late stage venture financing, but in a way to go public, that's a little different from a traditional IPO. I'm Francie Lacquois, an award-winning journalist, and I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts.

I've interviewed everyone, from heads of state to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. I guess I'm still like sort of bothered by the question.

And I think it sort of comes back to why. why SPACs historically have been associated with market peaks and why they've historically been associated with speculative manias and why people are just sort of distrustful of them overall. And I feel like, you know, late stage venture exists. But in late stage, I mean, that already is a class. So like late stage venture exists and you have, you raise a pool of funds and then you buy stakes in a bunch of different companies and maybe a good handful of them work out. because it's late stage and then you get paid on the results.

It still feels like this is a financing vehicle that could really only exist when there is lots of end retail money demand. People who can't invest put their money as an LP in a venture capital fund. People who can't get access to preferential allocation in an IPO. So it feels like it has to be during a period in which there's a lot of sort of retail speculative money out there. And it seems like unlike with a venture fund and a venture fund theoretically only can make money if there are some like mega winners, you could theoretically do to the founder shares get a do well just by doing okay and then you get your 20% and maybe it's not a home run, but you could still make money. So why is this not just something that is like strictly a sort of a market top phenomenon to feed the speculative.

of demands of retail buyers? It's interesting, but retail buyers are relatively new to SPAC. So most of the traditional back investors are your large investors. And some of that I think is opened up to not just highly speculative investors, but large investors, but institutional investors that might be pension type funds or as I said, large institutional funds. And mutual funds. So there are predominantly those types of investors financing these back.

Retail has been on, it has been increasing. And so I would say there's definitely some retail speculation going on. But it's certainly not the, they are not the largest. They're not what's really driving the investment, you know, the significant investments in SPAC, although they are, the retail market investments have increased. So your SPAC fusion acquisition is, it's already trading under the ticker views. What have you, what have you learned so far from the SPAC experience or what has surprised you in the SPAC process? So one of the things I've learned, which is actually pretty basic in a SPAC, but I mentioned before that the shareholders have the ability to redeem, and I think it's important to hit on this topic. But when the SPAC is going through what they call the DSPAC process, so when they've found a target, they've negotiated a transaction, and now they have to put it to investors. and some of the investors, including institutional investors, if they see a bit of a pop on the announcement,

they might want to redeem their shares and take the money now for whatever reason, or they might not like the deal. So to mitigate the risk of a lot of money coming out, the SPACs typically enter into an additional financing arrangement for that DSPAC transaction. And that's usually done through what's called a pipe, a private investment in public equity. So during that process, what I've come to realize, and we're not at that process yet, but I've been, you know, learning about it, is that the SPAC sponsors, you know, negotiate with the pipe investors so that there is this backstop, if you will, to fund significant redemptions, if there's significant redemptions.

And that's another opportunity where the SPAC sponsors might have to negotiate to give some of their founder shares to attract the investors provide pipe. So throughout the SPAC process, there are these different opportunities for negotiation. So certainly in the beginning, trying to get investors to come in when you do your road shows, you definitely get a sense of what the investors are looking for. then there's the agreement with the negotiations with the SPAC target, as well as the potential negotiations with a pipe financing. And when you think about these SPACs, we raised, Fusion Acquisition, we raised $350 million, but you're typically looking for something three, four, five times the size of your SPAC to acquire.

and that helps reduce any of the dilution of the founder's shares, the founders warrant. So that's one thing I've learned. And the other thing I've learned, it's just really exciting. I know the market is kind of crazy at the moment, but it's exciting to go through the process of talking to companies, looking at potential acquisitions. And this goes back to some of my experience when I was at State Street. is really, it's fun to look at opportunities and really try and select a good partner and

trying to complete a quality deal. And it's, as I said, they're not all going to be home runs, but it's really exciting to be in that process. If I were an investor in a SPAC, and I would hope that the management team is really looking out for sort of, you know, really doing a serious process, as you described, to find a quality deal. But at the same time, right now, we just see, you know, this incredible enthusiasm for, say, like, anything that's related to electric vehicles or autonomous vehicles. How does the sponsor team not just sort of pick something that's hot? Like, if I were to find some company that had some sort of laser tech that could identify other cars on the road. It's like, oh, yeah, this is this is autonomous

vehicle tech. Autonomous vehicle is hot right now. This will get a pop. How do they weigh the sort of near-term thirst for the market versus actually finding something that this could be a big, sustainable company with long-term potential? Well, on your car analogy, I think you really have to kick the tires for sure. And that's really critical is to, do your due diligence and get a feel for management and test their strategy and their business model and see where they have been, what they have proven so far, because you're not in so early. They actually have, you know, you're looking for companies that have a proven business model. So you really have to do that.

And you count on some of your advisors to help with that. process, but I think it really comes down to looking for a company that in the long run is going to be able to implement its strategy, have the flexibility to adapt and pivot when it needs to, and have proven their capabilities in at least the short run. But if I were a sort of owner of the $10 spec shares, how would, what I feel confident that the sponsor management team is actually going to do the process you describe, kick the tires, really get to know the business model, as opposed to just finding some flavor of the month that has a high chance of having a stock market pop when it's announced.

I think for the investor, it's really important to look at that sponsor and their team and understand what experience do they have, what do they bring to the table, have they done this before, maybe not through a SPAC structure, but have they been involved in valuing companies? Have they been involved in venture cap, in the particular industry that you're looking at? Have they been, as you mentioned, have they been involved in the car business? Have they been involved in technology innovation. So that's incredibly important for the investor who's investing in the SPAC is to do their due diligence on the SPAC team and make sure they understand what they're trying to accomplish and what they bring to the table. I have a really, really cynical question. And, you know, I'm sorry

because many of these questions have been really cynical. And I'm probably going to take it to a new level here. But if someone invests in a SPAC and it all goes wrong because management makes a bad investment decision or, you know, say they invest in a company that was cooking its books in some way or another and they didn't perform the proper due diligence that they should have, what recourse do investors have in that situation and what protection do the sponsors have legally for those kind of disputes? I think in those types of disputes, after the SPAC has been completed, so after the business combination has completed,

you're really looking at the typical shareholder rights that might come into play. Before the SPAC combination is completed, because fraud happens and companies cook their book. So, you know, it's sometimes incredibly hard to uncover that in even the most thorough due diligence. So there will be those situations you'll see when something really bad happens, as in any investment that you might make in the public markets. So you have the shareholder rights that you would see in any publicly traded equity that's listed, you know, at least in the, at least in the, U.S. it's listed on the exchanges, the SEC protections, if you will, for protecting against investors against fraud. But going into the business combination, if you're not keen on the

company that is being presented, and again, you at least have more, kind of more, but certainly significant amount of disclosure that's being provided to you, you can take your money back. You know, so you can get the the cash, your proportion of the cash that's held in that trust. But after the deal is done, it's really just like any other publicly traded equity. What's the next big thing in SPAC? So, you know, we've been talking about how SPACs are already the big. thing in markets at the moment, but what's the next iteration of the SPAC or the next trend that you see coming up? I think it'll be fascinating to see how we get through this incredibly hot

market. So what's going to result come out of, you know, all of these SPACs that are in the market right now looking for targets? So how will that all play out? I think that's really going to be interesting to see. And there's still more SPACs being listed, you know, every day right now. So So it hasn't cooled off quite yet. So what will, you know, we haven't seen a SPAC market like that yet. So how will that play out? And the other thing I think we'll see, especially with, with ACM, you know, putting out such significantly new deal terms is how will they evolve? So how will these structures become even more beneficial to not only the targets, but in the end,

the investors. And that, I think, you know, we'll see, we are already seeing evolution in the terms of SPAC deals. I think we'll continue to see that. That'll be fascinating to watch. Is the market for SPAC sufficiently hot enough such that if Tracy and I wanted to quit our jobs and launch like a media SPAC, with using our name and using our wide audience from the podcast that we could pull one off of this market? That's the real question. Well, if Billy Bean and Paul Ryan can do it. That's what I'm thinking. I feel like we're in that category.

Exactly. Just let me know. And the other thing you see is repeats back, especially from some of the big sponsors, is they do one and then they go on and do another. And I think what happens is when you're out there looking for one, you see multiple opportunities. and maybe some private companies that aren't quite ready, but they're going to be there in six months to a year.

And so I think you see opportunities, and that's why you see so many. I think that's one of the reasons you see repeat SPACs, repeat SPAC sponsors. Right. All right. Well, Joe and I are going to work on our repeat series of SPACs with extremely generous sponsor terms for both of us.

Okay. Kelly, you've been so generous. answering all of our very cynical spat questions. So thank you so much. Really appreciate your time. Kelly Driscoll from Fusion Acquisition, for it. It's been my pleasure. Thank you very much. So Joe, odd lots back. That's next, right? I mean, like, we could do one, right? No, I don't know. I'm a little bit worried about like legal liability if everything goes wrong. But yes, in theory, we could. You know, I often think like when there's a boom, I'm like, the only real idiots are just the people that don't just like dive in and take advantage of it. Like I remember

thinking like in 2017 with all the ICOs. It's like you're a real idiot if you're not like trying to launch an ICO right now. And I kind of feel like we're sort of stupid for not launching us back. But I think we should just, you know, stick to podcasts, stuff like that. Yeah. Okay. But you know what? You know what I kept thinking during that entire conversation? We're talking about SPACs as this sort of late stage market phenomenon. But I have no idea what stage. of the cycle we're actually in at the moment when it comes to the economy. And I know you don't like the subject of, or you don't like the simplistic take that markets are sort of divorced from the real economy at the moment, but you have to admit that that seems

kind of out of sync at a time when a lot of businesses are struggling for capital, smaller businesses. At the same time, we have this boom in SPACs that, you know, companies that are being pursued by SPACs aren't having any trouble whatsoever in getting new capital. It just feels really, really strange. No, it is really strange, but I do think, and I still like can't get away from this idea that just structurally as a market, it kind of feels, it fits with periods of speculative media. That like in theory, like, you know, IPOs can exist throughout every cycle and venture and PE, but it feels like SPACs as a financing vehicle have to be associated with some sort of

speculative fervor, some sort of euphoria in the market. And I think, you know, where we are in the business cycle, I don't know. And how much longer this bull market can go on, assuming it's still going on by the time people are listening to this, I don't know. But I don't think there's anyone who's doubting that there is a lot of sort of hunger for risk in this market. Yeah, a lot of hunger for risk and a lot of, I don't want to say naivete, but like trust in people able to achieve those returns. And I think that's one thing that really came through the conversation is just how important the managers or the sponsors actually are to making the SPAC a success.

And you're sort of completely dependent on them. I mean, you do exercise some rights over the companies that they acquire. You can vote on them. but really it feels like you're quite dependent on them to make the right decisions. Trust is a really good word and a really good way to put it. And I think it's one of those things that trust and confidence kind of emerge in bull markets. And it's one of those things like when, you know, one day the tide does go out and, like, other words of untrustworthy players in the market.

But yes, right now, whether it's the confidence that Elon Musk will be able to deliver on all his dreams or the Nika guy or whatever it is, there is a lot of faith in various managers and individuals that they will be able to deliver something extraordinary. And right now, you know, the investors who make those beliefs are doing very well. Yeah, I think that's exactly right. Okay. Should we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You follow me on Twitter at the stalwart. Follow our producer on Twitter,

Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts under the handle at podcasts. Thanks for listening. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report,

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