SPAC IS THE NEW BLACK: SPACs (Special Purpose Acquisition Companies) are all the rage these days. In this thread, I want to say a few things about SPACs that I learned in my research of the market. 1/15

What was once an esoteric (and somewhat tawdry) financing vehicle has now come into the main in terms of quantity ($83 billion in IPOs in 2020) and quality (A-player names pursuing SPACs from name brand PE and VC funds to leading investors and advisors and even celebrities.) 2/15
Early and serial SPAC sponsors like Harry Sloan and Jeff Sagansky (Flying Eagle), Michael Klein (Churchill) and Chamath Palihapitiya (Hedosophia) have helped propel the SPAC phenomenon to new heights, not to mention tech gurus, former politicians and even famous athletes. 3/15
LUMA has created a SPAC LUMAscape that maps over 250 SPACs by stage across 8 verticals. This is the evergreen post that we will endeavor to keep updated (and welcome your feedback): https://t.co/aboAAemu53 4/15
A SPAC is a blank check company where investors back a sponsor group to find a suitable target to merge with (the de-SPACing) which is often accompanied by a PIPE (private investment into public equity) to further finance the target company. 5/15
The attractiveness of SPACs is clear: For the target, it is a vehicle for an accelerated IPO. For the SPAC sponsor, they receive 20% of the equity in the SPAC. Note that equity is a zero sum game so the 20% sponsor promote dilutes the target company shareholders. 6/15
This is why SPACs “lever up” their combinations so that the sponsor promote dilution is minimized. For example, a $200 million SPAC may merge with a $800 million target (the SPAC would own 25%) so that the sponsor promote dilution would be reduced to 5% (20% x 25%). 7/15
Sponsors “earn” their promote by funding listing expenses (UW fees and legal), completing the IPO and having the knowledge and connections necessary to find a suitable target (within 18-24 months). They also invest their own money in the SPAC to have “skin in the game”. 8/15
REMEMBER: SPACs are only suitable as an IPO hack for public-ready companies. SPACs are NOT appropriate for companies that otherwise should not be publicly listed (sub scale, volatile revenues, customer concentration, unsustainable margins, etc.). 9/15
SPAC investors have their units held in trust until the target is identified and then vote on the merger. If approved, their units are swapped for equity in the target. If they redeem, the SPAC will likely have to fill the financing shortfall with an additional PIPE. 10/15
Most SPAC investors are sophisticated and specialized institutions that "play" each SPAC to maximize their returns from listing to the merger. They are not necessarily long term investors. This is what makes the vote / redemption / PIPE process tricky and hard to predict. 11/15
The 2020 class of SPACs has over $65 billion of cash chasing $250+ billion of targets which suggests we may be headed for a market imbalance (Demand > Supply). It is likely that such scale will help commoditize the SPAC market which will reduce the upside for many sponsors. 12/15
REMEMBER: SPACs don’t compete for targets on price (since the deal will not be approved if the valuation is too high). Rather, they compete based on the amount of sponsor promote they are willing to share with the target. Also, the sponsor value-add is a key differentiator. 13/15
Sponsors who can truly add value with proprietary deal flow and strategic advice will be able to differentiate and preserve their promote. This is similar to how brands differentiate and sell for a premium over generic (money in this case). SPAC sponsors should market more! 14/15
I will continue to follow this space closely and investigate ways for LUMA to participate by leveraging our deep sector knowledge, strong network of private companies, M&A deal-making leadership, banking prowess and marketing chops. Stay tuned. 15/15

More from Business

There are so many #HotTakes on the future of news and tech and digital this week. Now nearly half a year distant (and what a year - 2020, ugh!) from CEO and board @mcclatchy, I'd like to add a few thoughts: 1/


As @jbenton said in @NiemanReports : @mcclatchy transformation shows it STILL is possible NOW 'to be operationally profitable while still doing good journalism.' Not easy; Covid made it harder. But POSSIBLE and DONE by the great team in 2020 @mcclatchy. 2/

As @jbenton wrote: the #DIGITALTRANSFORMATION @mcclatchy 'shows a company that has managed the digital transition better than most; at last public count, it was making nearly half its ad revenue in digital and digital subscriptions were up 45% year-over-year.' Such focus 3/

On the future is digital is the SOLE way the still-powerful brands of local news and information will be able to have a business in the inevitable 'printless' future (Not today, not tomorrow, but printless someday) 4/

And the crisis in local news is relentless, unabating and by most measures WORSENING. More titles going dark; huge losses to our communities, because solely a blend of new digital startups AND existing footprint offer the scale 5/

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🌿𝑻𝒉𝒆 𝒔𝒕𝒐𝒓𝒚 𝒐𝒇 𝒂 𝑺𝒕𝒂𝒓 : 𝑫𝒉𝒓𝒖𝒗𝒂 & 𝑽𝒊𝒔𝒉𝒏𝒖

Once upon a time there was a Raja named Uttānapāda born of Svayambhuva Manu,1st man on earth.He had 2 beautiful wives - Suniti & Suruchi & two sons were born of them Dhruva & Uttama respectively.
#talesofkrishna https://t.co/E85MTPkF9W


Now Suniti was the daughter of a tribal chief while Suruchi was the daughter of a rich king. Hence Suruchi was always favored the most by Raja while Suniti was ignored. But while Suniti was gentle & kind hearted by nature Suruchi was venomous inside.
#KrishnaLeela


The story is of a time when ideally the eldest son of the king becomes the heir to the throne. Hence the sinhasan of the Raja belonged to Dhruva.This is why Suruchi who was the 2nd wife nourished poison in her heart for Dhruva as she knew her son will never get the throne.


One day when Dhruva was just 5 years old he went on to sit on his father's lap. Suruchi, the jealous queen, got enraged and shoved him away from Raja as she never wanted Raja to shower Dhruva with his fatherly affection.


Dhruva protested questioning his step mother "why can't i sit on my own father's lap?" A furious Suruchi berated him saying "only God can allow him that privilege. Go ask him"
MASTER THREAD on Short Strangles.

Curated the best tweets from the best traders who are exceptional at managing strangles.

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How to sell Strangles in weekly expiry as explained by boss himself. @Mitesh_Engr

• When to sell
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Beautiful explanation on positional option selling by @Mitesh_Engr
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1st Live example of managing a strangle by Mitesh Sir. @Mitesh_Engr

• Sold Strangles 20% cap used
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• Sold only


2nd example by @Mitesh_Engr Sir on converting a directional trade into strangles. Option Sellers can use this for consistent profit.

• Identified a reversal and sold puts

• Puts decayed a lot

• When achieved 2% profit through puts then sold