If you've read any type of investing news at all recently, chances are you've heard the term "SPAC." Special purpose acquisition companies, or SPACs, are companies that go public for the sole purpose of acquiring a private company and taking it public without a traditional IPO. Just to name a few, Virgin Galactic (NYSE: SPCE), DraftKings (NASDAQ: DKNG), and Nikola (NASDAQ: NKLA) are some recent examples of companies that went public via SPAC deals.
Two of the major themes in the SPAC world so far in 2021 are fintech and real estate -- or specifically, property technology (proptech). One new SPAC targeting both of those industries is getting set to launch, sponsored by co-founders of Silvertech Ventures.
SilverSPAC: What investors need to know
The SPAC's official name will be SilverSPAC, and it's seeking to raise $250 million in its IPO. The company plans to sell 25 million units at $10 each, and each unit will consist of one common share of stock as well as one-third of a warrant to buy an additional share in the future. We don't know what business the SPAC plans to take public, but we know that SilverSPAC will target the financial technology (fintech) and property technology (proptech) industries.
Initially, the SPAC will only trade as units, under ticker symbol SLVR.U. Then, 52 days after the SPAC's IPO, the common shares and warrants will begin trading separately. And while SilverSPAC has filed its SEC registration statement (known as an S-1), we don't know exactly when the SPAC will actually start trading yet.
Any SPAC that hasn't yet identified its acquisition target is a bet on management's ability to find a suitable company to take public. The two leaders of the SPAC are Charles Federman (CEO) and Tal Kerret (CFO), co-founders of Silvertech Ventures, a venture fund and accelerator in New York City. SilverSPAC's board includes:
- David Hirsh, a retired member of Blackstone's (NYSE: BX) real estate asset management group.
- Bonnie Kintzer, President and CEO of Trusted Media Brands.
- David Sable, who serves as a member of American Eagle Outfitters' (NYSE: AEO) board and founded a marketing consulting firm.
- Hagi Schwartz, founder of Magnolia Capital and a board member of Mimecast (NASDAQ: MIME).
Risks of buying SilverSPAC
Like any other newly created SPAC, there are two main risk factors when buying SilverSPAC.
The first is the risk that the company won't be able to find an acquisition target within the allotted amount of time. If this is the case, money in the trust account is returned to shareholders, with interest, but since most SPACs trade for at least a modest premium to their net asset value, this would likely result in a loss.
The second risk is that the SPAC acquires a company and takes it public, and shares drop. Given the current IPO environment, it's easy to forget that IPOs don't always perform well -- it's actually quite common for IPO stocks to trade for less than their IPO price shortly after going public.
The Millionacres bottom line
Buying any SPAC that doesn't yet have an acquisition target is an inherently speculative investment, but that doesn't mean it's a bad idea to take a calculated risk and buy some shares. As long as you're familiar with the risks and have a positive view of the SPAC's management team and targeted sectors, a SPAC can allow everyday investors to participate in IPOs that would traditionally be the realm of wealthy investors.