These SPAC stocks are trading at the highest premiums, so they better deliver with good deals

Published Wed, Mar 3 202110:57 AM EST

Enthusiastic SPAC investors drove shares of many pre-merger deals up dramatically before there's even a rumor about a target company, and they could end badly if their chosen takeover flops. A handful of recent blank-check companies are trading more than 40% above their initial public offering price, according Goldman Sachs data. Such high expectations could be hard to meet these days given the sheer number of SPACs rushing to get their deals done. There are a total of 326 SPACs seeking acquisitions with $103 billion of capital, according to Goldman. Take a look at the SPACs trading at the largest premiums to their IPO price. Bill Ackman's $4 billion Pershing Square Tontine Holdings has rallied 47% from its IPO price of $20 in July. The billionaire investor said he may target so-called "Mature Unicorns," referring to those more developed privately financed companies valued at more than $1 billion. Ackman, who made a killing last year for nailing the market bottom, also touted his blank-check deal as "most investor friendly SPAC in the world," saying there's no compensation to the sponsors. SPACs are special purpose acquisition vehicles, where investors raise money through an IPO and then merge with a private company. These SPACs have yet to find their merger targets. Chamath Palihapitiya's next deals Also on the top 10 list are two of Chamath Palihapitiya's SPACs — Social Capital Hedosophia Holdings Corp IV (IPOD) and Social Capital Hedosophia Holdings Corp VI (IPOF) , which have jumped 40% and 37%, respectively, since their IPO date. The CEO of Social Capital has been on a SPAC hot streak with deals high-profile deals like space tourism company Virgin Galactic , health care insurance startup Clover Health, online real estate startup OpenDoor and fintech SoFi. Palihapitiya previously revealed he has reserved tickers from "IPOA" through "IPOZ" on the New York Stock Exchange. He argued that SPACs, which offer a backdoor way for companies to go public, could help revive a shrinking stock market that's grown highly concentrated in the so-called FANG names. 'Tread carefully' Tech investor Brad Gerstner's SPAC Altimeter Growth Corp (AGC) has also climbed 30% since its IPO in September. Other popular deals that have seen significant share appreciation include Therapeutics Acquisition (RACA) , dMY Technology Group Inc III (DMYI) and HighCape Capital Acquisition (CAPA). The SPAC market experienced heightened volatility recently. The proprietary CNBC SPAC 50 index , which tracks the 50 largest U.S.-based pre-merger blank-check deals by market cap, dropped about 10% last week alone, trimming its 2021 gains to 7%. Notably, Lucid's merger with special purpose acquisition company Churchill Capital Corp IV served as a gut check for some SPAC investors. Shares of Churchill Capital Corp IV plunged 38% on Feb. 23, following its announcement that it would merge with luxury electric car company Lucid and take it public. Many on Wall Street have sounded the alarm on the red-hot SPAC market amid elevated speculative behavior. "The performance of SPACs appears highly speculative, and its surge in popularity maybe another sign of recent market ebullience. said Jason Pride, chief investment officer of private wealth at Glenmede. "Investors should tread carefully with SPACs, as costs and dilution post-merger may be larger than those borne via traditional IPOs." Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett's longtime business partner, said last week that "the world would be better off without them," and the craze is "a sign of an irritating bubble."

Traders on the floor of the New York Stock Exchange.

Source: NYSE

Enthusiastic SPAC investors drove shares of many pre-merger deals up dramatically before there's even a rumor about a target company, and they could end badly if their chosen takeover flops.

A handful of recent blank-check companies are trading more than 40% above their initial public offering price, according Goldman Sachs data. Such high expectations could be hard to meet these days given the sheer number of SPACs rushing to get their deals done. There are a total of 326 SPACs seeking acquisitions with $103 billion of capital, according to Goldman.

Take a look at the SPACs trading at the largest premiums to their IPO price.