While DraftKings’ (NASDAQ:DKNG) decision to reverse-merge into a SPAC led to the company’s valuation ballooning from about $3B in April to more than $13B on Friday, investors and companies should be wary about the surge of available SPACs, according to CEO Jason Robins.
“Hopefully the market settles down a little bit there,” he told CNBC’s 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.”
“Historically, growth companies wouldn’t have been thought of as SPAC candidates,” added Bennett Schachter, Morgan Stanley’s global head of alternative capital solutions. “What Draftkings and Nikola did, I think they showed the market that there’s a new application of SPACs. Just because you’ve made money doesn’t mean you’re going to be a successful SPAC issuer. LeBron James or Michael Jordan might be the best basketball player, but if you gave them ice skates, I’m not sure they’d be Wayne Gretzky. Just because you’ve been successful doing one thing doesn’t mean you will be successful doing something else.”
Takeaway: While most SPACs are targeted, the focus of the acquisition vehicle is less important than the actual track records of the individuals operating the shell company who will continue to invest in the company moving forward.
In recent weeks, hedge fund manager Bill Ackman, Oakland Athletics general manger Billy Beane, former Trump economic adviser Gary Cohn and former U.S. House Speaker Paul Ryan are among the notable names to back SPACs.
So far in 2020, there have been 81 SPAC IPOs that have raised gross proceeds of $33B, according to SPACInsider, eclipsing all SPAC gross proceeds raised in 2019.
Previously: SEC Approves NYSE Proposal for Direct Listings