Lucky dip

I have been hearing and reading a lot about SPAC's in the last few weeks. Otherwise, special purpose acquisition companies. The hot ticket in the world of high finance. Or low finance, depending on your point of view.

The idea seems to go as follows. I am some private finance operation, private so that I have only very modest obligations to explain what I get up to to the tax man or anyone else.

I create one of these SPAC's and get it listed on the stock exchange. As a private finance operation I know all about how to do that. The purpose of the SPAC is to suck the money in from the punters blind and then, at some point, to identify some undervalued, usually private asset, and to use the money to buy it. I put in my management team, expert at puffing companies back into life, or that failing, sucking all their money out of them. Assuming the asset floats, the SPAC and the asset become one, thus making what was a private asset into a public asset and the original punters (otherwise backers) can either run with their new toy or cash out. I suck lots of money out in the form of fees, expenses, commissions and so and so forth - and to the extent that I have put my own money into the game, I might win on that too. While if it all goes pear shaped, the damage is contained within the SPAC. Don't need to reach into my piggy bank.

The key point is that the punters are pouring their money into my SPAC blind. They have no idea what asset I might eventually buy, although they might know that I specialised in this or that area. Possibly asset stripping. They are hoping that they will get rich quick by buying into some undervalued asset that no-one else has spotted.

While for the original owners of the undervalued asset, this is a way for them to cash out. Sold to them as a better deal than they might get otherwise.

All seems very dodgy to me. Low finance, definitely. Gives capitalism a bad name.

PS: it seems that our fat leader is being told to loosen up the rules, such as they are, which apply to such operations because otherwise Wall Street will get all the action - and that would never do.

Reference 1: https://en.wikipedia.org/wiki/Special-purpose_acquisition_company.