Miller also said he likes Metromile, a US-based pay-per-mile insurance technology that merged with SPAC Insu Acquisition in February. The billionaire called it the “next wave of insurance company.” Metromile shares have tumbled 50% since their public debut.
“That’s the name we think you could make multiple times your money in the next three or four years,” he told CNBC.
SPACs, shell companies seeking to merge with private companies with the intention of taking them public, have boomed. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.
Recently however, US regulators have said they will take a closer look at SPACs following the blistering pace of growth over the last year.
The co-founder of London-based hedge fund Marshall Wace is sounding the alarm over blank-check companies, which he said have delivered “awful returns,” Bloomberg reported. The British investor also said he is ramping up short bets against special purpose acquisition companies, or SPACs.
In a newsletter addressed to his investors, Paul Marshall said that the SPAC market is overrun with “perverse incentives”.
SPACs are shell companies seeking to merge with private companies with the intention of taking them public.
“The SPAC phenomenon will end badly and leave many casualties,” said Marshall, who, in the past has lost money betting on SPACs. He disclosed to Bloomberg that his hedge fund has around $1 billion of gross exposure to SPACs.
Marshall’s firm, which manages $55 billion of assets, owns or has owned “almost every SPAC” on the long side.
“We have increasing exposure on the short side as the SPACs go ex-deal and the low caliber of the deals, and even the potential for bezzle, becomes apparent,” he told Bloomberg. “Bezzle” refers to the period in which an embezzler has stolen money without the victim realizing yet.
The billionaire’s warning comes amid a SPAC boom that has dominated financial markets in 2020 and 2021.
In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, 308 SPACs have raised $99.7 billion, comprising 65% of all IPOs.
The O’Leary Funds and O’Leary Ventures boss – whose nickname is Mr. Wonderful – also slammed celebrity SPACs, praised Robinhood, and trumpeted NFTs during the conversation with influencer Kevin Paffrath on his YouTube channel, Meet Kevin.
O’Leary also criticized the Biden administration’s plan to hike corporate taxes, and called for the US to take a tougher stance towards China.
Here are O’Leary’s best quotes from the interview, lightly edited and condensed for clarity:
1. “I’m waiting. So far there’s been no correction, but I’ve lived through lots of volatility and I know, just when it seems to be safe, poo poo happens.” – discussing the prospect of a market crash.
2. “GameStop’s brand has way more value today than it had five months ago, before it became part of every headline around the world, day after day. Netflix saw the writing on the wall when they were mailing DVDs to everybody and said, ‘We’re going to digitize this,’ and they had a brand. Maybe GameStop can do the same thing.”
3. “If I was short GameStop stock right now, I’d be worried. I think it’s going to get a second kick at life. This whole social constituency supporting it – the pricing of the stock is kind of irrelevant at this point.”
4. “It’s hilarious if you look at the volatility of Amazon over the last 20 years. You would have never owned it as it’s so volatile, but in the long run it’s created a trillion dollars’ worth of value for shareholders. Same thing is going to happen to these stocks that are going to provide digitization.” – underscoring the growth prospects of Zoom, Shopify, and other stocks that enable remote activities.
5. “It’s not good news for the airlines because even though they’re coming back, it’s all basically vacation tickets. Everybody’s going to Disneyland in a big tube. That’s a very crappy business, they won’t make any money. Over the next two years, probably a couple of them have to go bankrupt.” – underscoring the challenges for airlines if business travel permanently falls by 15% or 20%.
6. “Frankly I’m not a big fan of SPACs. I do have about 20 SPACs in my portfolio right now, but only from operators that I know. A SPAC is no different than private equity, and so I need to know the team that’s backing the SPAC has done deals before, knows how to buy at the right multiple, and knows how to operate. I’m against the idea that some celebrity knows what they’re doing in private equity, it’s a joke. I avoid those like the plague, I think those are going to go to zero.”
7. “I’m a big fan of Robinhood because even though it’s got a lot of criticism, it helps 22 million people learn about stocks. I’m a big believer in learning the ways of the stock market.”
8. “When you get into these complex straddles and collars and all of this stuff with leverage, sometimes you wake up with a hangover after going out to a party, and you forget the position you have on and you just blow yourself up. You’ve got to be careful.”
9. “I’m beyond sanctions, I want to take them right out of the financial system in North America.” – calling for the US to adopt a tougher stance towards China in order to level the playing field.
10. “Elon Musk is a maverick who doesn’t play by the rules, but he’s actually a good example of how this relationship should work. If American companies want to go to China, they shouldn’t have to give up control of their intellectual property to do that.”
11. “If you believe that burning up huge amounts of coal is detrimental and I do, you should stop buying bitcoin from the Chinese. Over time, as institutions start to really get involved in crypto, you’ll have the discounted blood coin from China and you’ll have the premium virgin coin with provenance – no different than blood diamonds.”
12. “NFTs are a derivative of the digital economy. There’s merit, but as a new asset class it’s going to be immensely volatile. The idea that you have something that’s copyrighted in perpetuity and can’t be forged is really interesting and a good idea. At the end of the day they will find their place.”
13. “You’re pouring free money out of the sky from a helicopter into anywhere you can stuff it. But then you’re raising taxes so you’re taking it back right away, before it has a chance to have any effect whatsoever. You can’t suck and blow at the same time, it doesn’t make any sense.” – criticizing the Biden administration’s plan to follow up its stimulus efforts by raising corporate taxes.
14. “The idea that Yellen can run around the world asking for a standard minimum corporate tax is a joke that’s never going to happen.”
15. “I covet downside protection much more than outperformance. I don’t care about beating the indexes at all. I don’t need more money, I need to keep what I’ve got.”
16. “Buying the dip is more rock and roll, but what invariably happens is you go through a massive correction and you learn a very important lesson. The generation that is trading right now has never gone through a sustained correction. It’s coming – I don’t know when, I don’t know what’ll trigger it, but they will learn their lesson. If you have a lot of leverage on, it’s a hell of a lesson because you end up in a negative net-worth position. But you do learn from it.”
17. “Take 10% of your paycheck, put it away, and do not touch it except in emergencies. When you take money and burn it on a vacation, or buy some useless piece of crap you’re never going to use – which many people are guilty of including me – you’ve killed off your future. That money’s not working for you anymore. Do you really need another pair of jeans, another pair of shoes? Just look at your closet of all the crap you don’t wear, that’s all money you wasted.”
18. “If you walk around with an Apple Watch on, that thing is a piece of consumer-electronic junk. I own Apple stock, but I would never be seen dead with an Apple Watch. Not a chance in hell.” – voicing his preference for wearing traditional watches and supporting conventional watchmakers.
The US Securities and Exchange Commission issued a warning to blank-check companies presenting projections that only give an optimistic outlook of future growth. The agency added that it will “look carefully” at SPAC filings and disclosures as well as those of their private targets.
John Coates, the agency’s acting director for the corporation finance division, said on Thursday that a company would be on “shaky ground” if it only disclosed favorable projections and omitted “equally reliable but unfavorable projections.”
Special purpose acquisition companies or SPACs have been booming, enabling many pre-revenue startups to go public. SPACs are essentially shell companies seeking to merge with private companies with the intention of taking them public. SPACs are often considered a cheaper, faster alternative to a traditional IPO.
SPAC sponsors have also generally been allowed to more freely give projections of future growth than is allowed for companies going public via traditional IPO, which are not allowed to broadcast future sales or earnings.
Coates pointed to the Private Securities Litigation Reform Act safe harbor, a legal liability SPACs often refer to when making optimistic forward-looking statements.
“This…is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses,” he said, referring to the safe harbor.
This, he said, raises significant investor protection questions, and is why he is calling on the agency to treat SPAC deals with the same level of scrutiny as IPOs.
“Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst,” Coates said. “Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.”
Coates added that while projections are woven into the fabric of business combinations, they have to be fair. Forward-looking information, he said, can be “untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRA’s liability protections.” He floated the possibility of having guidance about how projections and related valuations should be presented.
SPACs have attracted a number of high-profile investors including famed fund manager Bill Ackman and billionaire Chamath Palihapitiya. Celebrities have also joined the bandwagon, with icons such as baseball star Alex Rodriguez and tennis legend Serena Williams backing recent SPAC offerings.
Last year, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But by the fourth month of 2021 alone, data already show 306 SPACs that raised $98.3 billion, comprising 79% of all public offerings.
California cannabis company Glass House has agreed to go public in a $567 million deal. It will be acquired by Mercer Park Brand, a Canadian special-purpose acquisition vehicle (SPAC), likely in the first half of this year.
Glass House is one of the largest cannabis companies in California. It currently oversees more than 500,000 square feet of cultivation crops and produces more than 110,000 pounds of dried flowers. Additionally, it runs four dispensaries and is active in the cannabis wholesale sector. Year-on-year revenue grew by 185% to $53 million in 2020.
Following the sale, “Glass House Group is poised to become the largest, vertically integrated brand-building platform in California,” Jonathan Sandelman, the chairman of Mercer Park, said in a statement.
“When we formed Mercer Park BRND, we aimed to create a platform that could launch the first national cannabis brands in the United States,” he continued.
The acquisition of Glass House includes all of its brands: Glass House Farms, Forbidden Flowers, and Mama Sue. Glass House Farms had a 4% market share at the end of 2020 and is aimed at the average, everyday cannabis consumer. Forbidden Flowers and Mama Sue have more targeted demographics and other product offerings, including THC flower, hemp flower, and tinctures.
The deal extends to two other players in California’s cannabis industry, Retailer Element 7 and Southern California Greenhouse. Glass House will merge with both of these companies within the next year, according to the deal.
Glass House itself is valued at $325 million in the deal. Retailer Element 7 and Southern California Greenhouse are priced at $24 million and $219 million respectively.
Retailer Element 7 will provide an additional 17 dispensary locations in addition to the existing 4. Through the merger with Southern California Greenhouse, Glass House will gain 5.5 million square feet of cultivation space.
“This additional capacity is expected to increase Glass House’s current footprint to up to approximately 2.5 million square feet by 2023. The Company’s total, targeted long-term footprint of 6 million square feet is expected to be by far the largest cultivation capacity in California,” said the joint statement by Mercer Park and Glass House.
Impossible Foods, the startup behind wildly popular vegan burgers, is exploring a public listing that could give the company a valuation of $10 billion, Reuters reported on Thursday.
At its last funding round in March 2020, the plant-based meat company was valued at $4 billion.
Impossible is now weighing options between going public via an initial public offering or a merger with a special-purpose acquisition company, Reuters said, citing sources. This could happen within a span of the next 12 months.
Financial advisers have been approached to help manage discussions with SPACs that have already extended offers at a lucrative valuation, sources told Reuters. The SPAC route could diminish the positions of existing shareholders more substantially compared to an IPO.
Impossible Foods was founded by CEO Pat Brown in 2011 when he was on a sabbatical from teaching biochemistry at Stanford University’s medical school. Brown previously told Insider he wished he gained an understanding of the meat industry earlier in his career, so he could’ve launched Impossible Foods sooner.
The company is backed by venture capitalists Khosla Ventures and Horizons Ventures, and more than a dozen superstar investors ranging from pop icon Katy Perry to tennis champion Serena Williams and rapper Jay-Z.
Shares in rival plant-based company Beyond Meat are trading more than 400% higher above its public debut price in 2019.
Several private companies are eager to be acquired by SPACs after a surge in popularity within the space last year. More than $98 billion has been raised across 306 SPAC IPOs so far in 2021, surpassing last year’s record of $83 billion, according to data from SPACInsider.com.
Many of these companies may be unaware of the legal implications of not fully understanding the disclosures they can and can’t make when going public. For this reason, the Securities and Exchange Commission has warned SPAC dealmakers of the risks and governance issues related with raising capital through blank-check firms.
Impossible didn’t immediately respond to Insider’s request for comment.
A US markets watchdog official on Wednesday cautioned blank-check company dealmakers about the risks and governance issues that come with raising capital through special-purpose acquisition companies (SPACs).
Paul Munter, the acting chief accountant at the Securities and Exchange Commission, said timelines of such transactions are part of the challenges for private companies that merge with SPACs. That is because their development may still be in early stages.
“Many SPAC acquisition targets may be at an earlier stage in the entity’s development compared to companies that pursue a traditional IPO,” he said in a statement, adding target companies should have a plan to address the demands of becoming public on a speedy timeline.
Munter urged market participants to carefully consider risks, complexities, and challenges in the space, including the consideration of whether target companies are prepared to go public.
SPACs have raised $97 billion across 298 IPOs so far this year, exceeding the previous year’s record of $83 billion raised, according to data from SPACInsider.com.
But March was a rough month for companies in the space as firms and individual investors grew increasingly cautious over SPAC investing. 93% of SPACs that went public in the last few weeks of the month were trading below par value, or $10 per share. JPMorgan said SPAC acceleration may be hitting a peak and could slow for the rest of the year.
“Given the explosion in popularity of SPACs, it’s no surprise that enforcement is asking questions – this is the beginning of what I expect will be heightened scrutiny of trading and disclosures to investors arising from the surge of these transactions,” Doug Davison, partner at law firm Linklaters, said.
Lilium is a German-based firm that is developing electric air-taxis that can vertically take-off and land. The firm is currently building a 7-seater jet that it expects to launch commercial operations for in 2024. According to Lilium, the electric taxi-jet has a projected cruise speed of 175 mph at 10,000 feet, and has a range of 155 miles.
Former General Motors executive Barry Engle will join the board of the combined company, as will former Airbus CEO Tom Enders.
“I have spent my career in mobility and been part of the electrification of the automotive industry. The market and societal potential from the electrification of air travel is enormous,” Qell said.
The SPAC merger will raise total gross proceeds of $830 million for Lilium, and investors include Baillie Gifford, BlackRock, Tencent, and Palantir. Lilium will use the proceeds to fund the launch of commercial operations, including finalizing production facilities in Germany and obtaining type certification of the aircraft.
Qell Acquisition Corp. traded up 3% on the merger news to just above its $10.00 offering price.
Hedge fund billionaire Bill Ackman is already planning a second blank-check company, although he expects to miss his own first-quarter deadline to find a first target.
The legendary investor had hoped his special purpose acquisition company (SPAC) would find a target by the end of the first quarter, but now admits this might not happen. Prior targets on the list of his Pershing Square Tontine Holdings SPAC included Airbnb, Stripe, and Bloomberg LP, according to Reuters.
“While we previously believed that we would be able to announce a potential transaction by the end of this quarter, we will not be in a position to do so,” Ackman said in a letter to investors on Monday. “We do not intend to make any announcements about PSTH’s transaction progress until we enter into a definitive agreement.”
Ackman said he believes his SPAC will be an important contributor to the hedge fund’s performance and he will likely launch a second one after completing a first merger. Investors in his first SPAC should have the right to invest in the second one “without paying a premium to its cash-in-trust value,” he wrote in the letter.
Ackman’s PSTH was the highest-profile SPAC among hedge funds in 2020, when SPACs raised $83 billion across 248 IPOs, smashing the previous record of $13.6 billion, according to SPACInsider.com. His SPAC raised a record-breaking $4 billion via proceeds from investors in July last year, along with an added $1 billion commitment from Pershing Square.
While he has not told investors which companies he was looking to take over, a previous filing stated he is drawn to “high-quality, venture-backed businesses” that could be classified as “mature unicorns.” Unicorns are privately-held startups with a valuation of more than $1 billion.
The SPAC has until July 21 next year to sign a letter of intent and six months after that to close a signed deal, according to Bloomberg.
Shares in Pershing Square Tontine fell 1.3% in pre-market trading on Tuesday.