Want to trade like Henry Kravis? You could pony up a couple billion, or you could buy a SPAC. Special Purpose Acquisition Companies, or SPACs as they called are essentially blank check companies that are sold to the public with the promise that they will acquire another company.
So here's how it works. You can buy a SPAC just like a stock. That SPAC will look to acquire another company within two years. Once the acquisition goes through, you'll have shares in the newly formed company.
Investor appetite for private equity has fueled a recent growth in SPACs. In 2004, SPACs represented on 6% of IPOS. Year to date, they comprise over a quarter of the IPO market.
There are risks associated with buying SPACS, the main one being the acquisition will be unsuccessful. Therefore it all boils down to who’s running the company. There's a premium placed on the company's management.
Mike Connors the CEO of Information Services Group (III.U) joins the guys for this conversation. His firm is the world's third largest SPAC.
Dylan Ratigan says he’s skeptical – he wants to know why investors should write him a blank check?
Connors says there are three reasons. 1) the quality of the leadership team 2) the track record of success and 3) the industry segment.
What is your fee structure, Dylan asks.
Very simple, says Connors. We take a percentage of the overall money that we raise. The money goes into a trust account and its protected until the acquisition.
Dylan turns to Tim Strazzini and asks, who is the typical customer for this kind of investment?
Tim says it’s mostly hedge funds and some wealthy families.
Dylan Ratigan says the bottom line is investors have to know the management.
On May 2, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;Strazzini Owns (C), (MPEL), (MER), (NWS-A) Bolling Owns (MPEL), Bolling Owns Natural Gas Futures
“Pali Capital acts as an underwriter in the public offering of securities and structured products and the statements of Mr. Strazzini on this Program is not an endorsement of such securities or structured products or any offering of such securities or structured products.”
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