- Jeremy Grantham’s early stake in battery producer QuantumScape has surged following the firm’s merger with a special-purpose acquisition company, but Grantham still isn’t sold on the blank-check IPO trend.
- Grantham invested $12.5 million into the company seven years ago. That stake now stands at roughly $278 million thanks to a SPAC merger and QuantumScape’s subsequent stock rally.
- The position is “by accident the single biggest investment I have ever made,” Grantham told the Financial Times.
- Still, the investor sees SPACs as a “reprehensible instrument, and very very speculative by definition,” largely due to their lack of listing requirements and overall regulation.
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The very kind of dealmaking that Jeremy Grantham previously deemed “reprehensible” netted the famous investor a $265 million profit.
Grantham, who founded investment management firm GMO and serves as its long-term investment strategist, invested $12.5 million in battery producer QuantumScape seven years ago as one of several stakes in early green-tech companies, according to the Financial Times. The position swelled after Kensington Capital Partners announced plans to merge QuantumScape with a special-purpose acquisition company, or SPAC, in September.
The deal valued QuantumScape at $3.3 billion, and shares traded at more than four times their listing price when the acquisition was completed on November 30. The company’s stock rallied another 31% on Tuesday alone, valuing Grantham’s stake at roughly $278 million.
Yet the legendary investor isn’t convinced Wall Street’s SPAC frenzy will last. The QuantumScape position is “by accident the single biggest investment I have ever made,” Grantham told the FT, partially fueled by the so-called blank-check companies’ lack of regulation.
“It gets around the idea of listing requirements, so it is not a useful tool for a lot of successful companies. But I think it is a reprehensible instrument, and very very speculative by definition,” he added.
Grantham’s profit stands to climb even higher. QuantumScape soared as much as 37% in early Wednesday trading. Should the rally hold into the market close, it would add another $100 million to his total gains.
SPAC firms raise capital through an initial public offering with the intention of using the cash to acquire a firm and take the merged entity public. The last two years have seen market favorites including Virgin Galactic, DraftKings, and Nikola go public through such deals.
Blank-check IPOs exploded in 2020 as firms looked to take advantage of a surge in participation from retail investors and hopes for an economic recovery. More than $74 billion has been raised across 218 SPAC debuts in 2020, according to data from SPACInsider.com. That compares to just $13.6 billion raised across 59 deals in 2019.
Wall Street’s obsession with the vehicles could be a sign of unsustainable market optimism, Grantham told the FT, rivaling the overwhelming bullishness seen during the 1920s and the late-1990s tech bubble.
Tesla’s meteoric rise through the year has made electric-vehicle SPACs – and any SPAC related to the EV market – particularly popular. QuantumScape lands in that basket. The firm produces solid-state batteries used in electric cars and has backing from industry giant Volkswagen.
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