Special purpose acquisition companies (SPACs) and blank check companies have been all the rage in the market this year. The most popular of these have manifested as sports betting companies, but there are so many more options.
For those late to the party, a SPAC or blank check company is one formed for the distinct purpose of acquiring another existing company. SPACs raise their money through an initial public offering (IPO) to effect this desired business combination, whether it be a merger or acquisition. In a sense, SPACs allow retail investors to invest in private equity type transactions, specifically, leveraged buyouts.
SPACs are an alternative way for companies to come public, and this may be particularly valuable for companies whose fundamental business is hard to evaluate in a financial sense. Also, this process takes out some of the hassle for small-cap and mid-cap level companies that want to come public.
These SPACs rely heavily on their management teams and their numerous years of experience to pick out the best acquisition target companies. There are usually big names involved with these companies. In some cases, many are investing in these figureheads more so than the actual company, as acquisition targets may be ill-defined.
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Again, this year has been especially profitable for SPACs, but this is nothing the market hasn’t seen before. For comparison, 2019 was a record year for SPAC activity in a couple ways. The IPO count and gross proceeds from these IPOs hit record numbers last year (59 IPOs, raising $13.6 billion in gross proceeds). It’s likely that 2020 will be another record year for SPACs in particular, all things considered. Some suggest that there is a real potential for SPAC IPOs to reach or surpass 100 by the end of the year.
Here 24/7 Wall St. has put together a list of SPAC stocks and blank check stocks that could win big this year, and these aren’t just the ones involved in sports betting.
Landcadia Holdings II Inc. (NASDAQ: LCA) came public back in April, but it really made a splash at the end of June when it announced that it would be acquiring Golden Nugget Online Gaming. This SPAC is headed up by billionaire investor and restaurateur Tilman Fertitta. Much of the excitement around this move is in regards to putting more gambling online.
According to the Golden Nugget deal, the transaction values the combined company at an anticipated pro forma enterprise value of approximately $745 million, or 6.1 times Golden Nugget Online Gaming’s estimated 2021 revenue of $122 million.
Note that Golden Nugget Online Gaming is a U.S. online real money casino owned by Fertitta. After this deal, it will become only the second pure publicly traded online casino company in the United States.
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Pershing Square Tontine Holdings is not public yet but it is on the way. This company basically will act as a subsidiary to Bill Ackman’s Pershing Square Capital Management, which is more or less acting as the SPAC sponsor. The company did not mention its intended target or industry, but it is looking to pursue merger opportunities with private, large capitalization, high-quality, growth companies.
In terms of the IPO details, the firm is offering a total of 150 million units for $20 apiece. Each unit consists of one share of Class A common stock and one-ninth of a warrant. At this price, the offering is valued up to $3 billion. The company intends to list the common stock on the New York Stock Exchange under the symbol PSTH.
DraftKings Inc. (NASDAQ: DKNG | DKNG Price Prediction) is one of the more popular SPACs to come public this year. Although it did not come public through an IPO, it still qualifies for the distinction. This is a vertically integrated, pure-play sports betting and online gambling company.
Sports betting is currently legal in 16 states and the District of Columbia, and DraftKings has access to operate in 12 of them. Not all these states have legalized online and mobile sports betting.
The company recently completed a secondary offering. To put it simply, investors couldn’t get enough of this stock in the first go around and management saw an incredible opportunity to capitalize. In the past quarter alone, the stock is up about 170%.
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Virgin Galactic Holdings Inc. (NYSE: SPCE) came public in 2019 after it completed its merger with the publicly traded SPAC Social Capital Hedosophia. The stock saw a meteoric rise since it came public, but it came crashing back to Earth when the COVID-19 pandemic hit.
Virgin Galactic was founded by Richard Branson back in 2004 and operates as a vertically integrated, customer-facing “spaceline” business and aerospace manufacturer. Social Capital’s CEO Chamath Palihapitiya has been very outspoken about disrupting the IPO market, in a way creating what he calls “IPO 2.0.”
The sky may not be the limit for this spacefaring business that’s shooting for the moon. In fact, it may be one of the first in line for privatizing space flight with its most recent deal with NASA.
Nikola Corp. (NASDAQ: NKLA) entered the market early in June. This company operates as a manufacturer of electric heavy-duty vehicles, as well as pure electric and hydrogen electric powertrains.
Although this company has only been public for a little over a month, shares have gained over 50% in this time. The popularity and intrigue surrounding Tesla and its electric vehicles fits very well here, but there is still some distance for Nikola to go.
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