October 5, 2020
Getting early stakes in the best new companies… BEFORE they go public… gives investors a legitimate chance to make five to 25 times your money.
Usually, the Securities and Exchange Commission won’t let you anywhere near pre-IPO deals. It’s called Rule 501 of Regulation D – and it restricts these lucrative investments to accredited investors, those who have had an income of at least $200,000 for two years or a net worth of at least $1 million.
That’s why Enrique Abeyta – who we featured on the cover of our March magazine – is so excited about a little-known, but growing, area of the stock market.
It essentially opens the door to Main Street investors for these sorts of pre-public opportunities… for as little as $10.
And the gains, of course, can be incredible. In fact, the last time Enrique shared this type of pre-IPO opportunity with his readers – back in December 2019 – you could have tripled your money in just two months. And one man who shared his results with Enrique said that he was up nearly $10 million on the recommendation.
If you’re interested in learning more, reserve your free spot now to an educational presentation on October 8.
Then, read on for more about the opportunities in this market niche…
Publisher, American Consequences
How to Buy Twinkies, Sports Betting, and Rocket Ships… Before They’re Public
By Enrique Abeyta
Snack foods, online gambling, and space tourism…
At first, it would seem like those three things have nothing in common. However, all three businesses I’m describing – Hostess Brands (TWNK), DraftKings (DKNG), and Virgin Galactic (SPCE) – took an unusual but fast-growing journey to become a publicly traded company.
I’m talking about special purpose acquisition companies (“SPACs”). In the 1980s, SPACs were like the Wild West. With little regulatory oversight, they were littered with penny stock frauds.
In the early days, they were an alternative way for smaller companies to go public when they couldn’t do so via a traditional IPO… typically because they were too sketchy to convince a bank to help them go public.
By 1990, the U.S. Securities and Exchange Commission (“SEC”) began to crack down when it enacted the Penny Stock Reform Act. And in 1992 and again in 2003, it added additional regulations to ensure these companies would act in their shareholders’ best interest.
SPACs are a quicker, lower-hassle way for a private company to go public than a traditional IPO, which involves a road show, close SEC scrutiny, and is subject to market volatility. As the market downturn took hold earlier this year, many highly anticipated IPOs put themselves on hold.
On the other hand, SPACs are a fantastic and lucrative opportunity for management teams, who raise a pool of cash to take a private company public. It’s also less reliant on market conditions, which explains why SPACs have drawn a flood of interest as of late. As NYSE Vice Chairman John Tuttle recently remarked…
[SPACs] were around a while ago but didn’t have the same appeal. Now, they are larger and have some of the most well-known business leaders sponsoring them, which makes them more attractive to investors.
Indeed, Wall Street big shots like Bill Ackman, Mario Gabelli, Peter Thiel, and Howard Marks have recently launched their own SPACs… And institutions like TPG Capital, Apollo Global Management, Third Point, and Blackstone have sponsored SPACs as they’ve gone mainstream.
As Barron’s noted earlier this year, that’s creating a powerful feedback loop…
There’s a virtuous circle unfolding in the industry in recent years, with more credible SPAC sponsors doing deals with higher-quality companies, which attracts better, fundamentals-focused investors, as well as top tier investment banks and law firms. That, in turn, gets more higher caliber firms involved, more big-name company SPAC deals, and a broader investor base – and the cycle continues.
Take Ackman, for instance. Growing concerned about the COVID-19 pandemic and its effect on the economy, the billionaire hedge-fund manager famously turned $27 million into $2.6 billion in less than two months earlier this year by purchasing credit default swaps. Some have called it “the greatest trade ever.”
He took those gains and plowed them into beaten-down stocks as the market quickly recovered.
A few months later, Ackman announced he was launching a SPAC called Pershing Square Tontine Holdings, raising a record $4 billion in search of taking a “mature unicorn” public.
Ackman’s “unicorn” will be one of the most shareholder-friendly SPACs ever created. His fund will only own a 6% stake in the company (or companies) it takes public at a price 20% above its IPO price.
In other words, management will only get paid if the company Ackman takes public rises 20% or more after the deal closes. He is putting his money where his mouth is and will only look for the highest-quality companies he can, making Pershing Square Tontine Holdings a more attractive partner than other existing SPACs.
If his deal is a hit – and his track record indicates that it likely will be – it will be fantastic publicity for the SPAC market and further open the door for individual investors to flood into the market.
This isn’t Ackman’s first time playing in the SPACs sandbox, either. In 2012, he took fast-food chain Burger King public through his previous SPAC, Justice Holdings. To this day, he’s the second-largest shareholder in what’s now Restaurant Brands (QSR).
As he did with his $2 billion trade earlier this year, Ackman sees a huge opportunity in SPACs due to the pandemic’s market panic. As he explained in his initial filing…
The economic and market dislocation resulting from the COVID-19 pandemic, and the potential uncertainties created by the upcoming U.S. presidential election, create market conditions and a resulting set of investment opportunities.
We intend to pursue merger opportunities with private, large capitalization, high-quality, growth companies where our ownership in the merged company would generally represent a minority of shares outstanding at the time of the merger.
Some have speculated that private companies like payment processor Stripe, digital-currency exchange networks Coinbase and Ripple, online brokerage platform Robinhood, and loan refinancer SoFi could be potential targets for a SPAC to take public.
Through the end of September, 112 SPACs had raised $43 billion in proceeds, eclipsing the total amount raised from 2015 through 2019 combined. As you can see from the following graphic, the SPAC market is exploding in popularity and catching up to the traditional IPO market this year…
The uptick in SPACs led by world-class management teams, combined with investor-friendly terms, is quickly turning this little-known asset class into one of the biggest moneymaking opportunities of the years to come.
P.S. On October 8, I’m hosting the SPAC Investment Summit. I’ll explain everything you need to know to make money in this sector and share why I’ve never been more bullish on SPACs. And our special guest, investing legend and hedge-fund billionaire Bill Ackman, will even make an appearance to discuss the SPAC he launched a few months ago… Learn how to watch online here.
Now here are some of the stories we’re reading…
Shark Tank investor Kevin O’Leary breaks down his strategy for picking SPACs – and explains why he’d bet on Bill Ackman and 3 other leaders
“Do I want to bet with Bill? Sure I’ll give him some dough. Todd Boehly? Absolutely, the guy’s track record is spectacular out West. I want to give these guys money to put to work for me,” he said. “And basically because we have less and less public companies, what they’re going to do is find something and take it public, and I’ll be getting in hopefully on the ground floor.”
Trump tests positive for coronavirus: the timeline
President Trump tested positive for the coronavirus early Friday morning, throwing the state of the 2020 presidential campaign and potentially much more in Washington into question. The president announced his diagnosis in a tweet and said that he and first lady Melania Trump, who also tested positive, would quarantine together.
We’re a Long, Long Way From Running Out of Gold
With the metal hitting a record $2,075 a troy ounce in August, the concern we’re heading toward peak gold has reared its head again. The industry needs to commission 8 million ounces of projects by 2025 to maintain last year’s production levels, consultants at Wood Mackenzie wrote in June, requiring some $37 billion of capital investment. Mine production fell last year for the first time in more than a decade.
Inside the airline industry’s meltdown
Coronavirus has hit few sectors harder than air travel, wiping out tens of thousands of jobs and uncountable billions in revenue. While most fleets were grounded, the industry was forced to reimagine its future.
Last Call for Gumshoes
Something’s gone missing from the shadowy streets of San Francisco, a precious, revealing relic already mostly vanished long before the thieving suction of COVID-19. A piece of it is still with us, though who knows whether even that will survive. Few have noticed its disappearance, which is a tragedy because it is a deliciously naughty, rich vein of life; the city and its rough-edged, romantic culture will suffer without it.
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
October 5, 2020