SPAC-tacular! With David Sultan of Fir Tree







It has been a turbulent period for recent market darling, SPACs, also known as Special Purpose Acquisition Companies. Although SPACs began almost three decades ago, they only recently surged in popularity. In fact, more U.S. companies went public through SPACs than traditional IPOs in 2020. Fir Tree Partners has a long history investing in SPACs, and Managing Partner, David Sultan, joins the conversation to provide some perspective. 

In this episode, we define SPACs and how they work, discuss how the current wave of SPACs differs from past waves, and speculate as to whether the current craze is a bubble. Listeners will also learn about the various ways to invest, some of the craziest SPACs to date, and concerns that have brought about scrutiny from regulators.


0:00 Intro

0:30 Episode Overview

1:17 Welcome and Fir Tree Introduction

1:44 What is a SPAC?

3:33 When did SPACs first hit the market?

4:15 When did Fir Tree start investing in SPACs?

6:01 How is the current wave of SPACs different from previous waves?

7:51 Why a SPAC versus an IPO?

9:57 What is the incentive for sponsors?

10:51 How can an investor invest in SPACs?

13:20 How can managers invest in SPACs?

16:49 Are we in a SPAC bubble?

19:25 The craziest SPAC to date

20:25 A look at the major industries attracting market attention

22:10 Increased regulatory pressures

24:27 What's next for SPACs?

25:35 Closing thoughts

26:15 Disclosures


David Sultan

Managing Partner and Chief Investment Officer, Fir Tree Partners

David Sultan is the Managing Partner and Chief Investment Officer of Fir Tree Partners, a value-oriented investment adviser founded in 1994. The Firm capitalizes on mispriced opportunities across capital structures and asset classes, using a long-term and team-oriented approach. Fir Tree manages assets on behalf of pension funds, endowments, foundations, families and other institutional investors. Mr. Sultan joined Fir Tree in 1999 and assumed the CIO role in 2015. Over his 22 year tenure at the Firm, Mr. Sultan has developed the Firm’s investment processes, culture and team. Mr. Sultan has led the Firm’s corporate and sovereign credit, capital structure arbitrage, distressed, special situation equity and SPAC investments globally and through multiple market cycles. Earlier in his career, Mr. Sultan was an investment banker at Wolfensohn and Co. and an analyst at fundamental value investment firm Siegler, Collery & Co. Mr. Sultan holds a B.A. in Economics from Harvard University.


Greg Dowling

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.


Greg Dowling (00:06):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:30):

Besides Bitcoin, the other recent market sensation has been special purpose acquisition companies. If that does not ring a bell, they are better known by their acronym: SPACs. Well SPACs are not that new, they've been around for almost three decades. To help offer some education and perspective, we have a SPAC veteran lined up. David Sultan will be joining us on the Insight Bridge. He's a managing partner and CIO of Fir Tree Partners. Fir Tree is a New York-based value-oriented hedge fund. David and Fir Tree have had a long history in the space and he will help answer questions like what a SPAC is, how the current wave differs from past waves, is this a bubble, and issues around some of the new proposed regulation.

Greg Dowling (01:15):

David, welcome to the Insight Bridge.

David Sultan (01:19):

Thanks, Greg. It's great to be here.

Greg Dowling (01:21):

Hey, would you mind introducing yourself and Fir Tree?

David Sultan (01:23):

Certainly. I am David Sultan, the managing partner and chief investment officer of Fir Tree. Fir Tree is an investment firm. We've been around since 1994, so this is our 27th year in existence. We invest all across the capital structure--debt, equity, structured credit, converts, sovereign, real estate, etc., and SPACs.

Greg Dowling (01:43):

And SPACs. So funny story, I was having dinner with a good friend a few weeks ago--he's not an investment guy. And over dinner, he goes, "Greg, I invested in one of those sparks." I go, "Spark? What is a spark? You mean a SPAC?" And he's like, "Yeah, a SPAC or spark or whatever." So first things first, for those out there, what is a SPAC--or, as my friend called it, a "spark"?

David Sultan (02:08):

What is a SPAC/spark? I think for now we'll go with SPAC. SPAC officially stands for a "special purpose acquisition company." It's a shell company that's public, and the sole purpose of the IPO is to raise money from investors to use to eventually acquire another company. In many cases, we have some of the best-known deal-makers in the world--whether it's a private equity firm, a venture capital firm, individual deal-makers. They say, "We have a bunch of targets we think we can acquire." And they can't disclose that on the IPO. They raise the money from investors. The money goes into an interest-bearing trust account. Investors in return receive shares that trade publicly. Also in some cases they receive warrants as well. And then that sponsor who raised the money--say it was several hundred million dollars--has two years to find a deal.

David Sultan (02:54):

At some point, the sponsor will announce, "I'm buying company X, Y, and Z, or merging with this company." They then come to us, the investors, and say, "Would you like to participate and convert your shares into the shares of this newly listed public company? Or do you not like the deal and want your money back?" And that is really the magic of the SPAC. As an investor, you have a put right always. So you get a free look at a deal--and some deals are great, some are not so good. The market's able to determine which ones make sense and which ones don't. If, at the end of that two years, the sponsor has not found a deal or all the investors don't like what they've seen, they get their money back. The warrants expire worthless, but the investor hasn't lost money.

Greg Dowling (03:31):

Thanks for that background. When was the first SPAC ever created or released?

David Sultan (03:36):

It's a good question, Greg. Something many folks are unaware of. SPACs have actually been around for a pretty long time. So the first SPAC was actually issued in 1993 time period. Information Systems Acquisition Corp. It was a whopping $12 million. There were about a dozen SPACs issued after that, in that 90s time period. And then they stopped. They were overrun by the IPO boom of the late 90s. Everything just went public at crazy valuations, no one had a need for a SPAC, and the structure was dormant for a number of years. It rebirthed itself in '03, '04 in EarlyBird securities. And the first SPAC in that iteration was Millstream Acquisition Corp.

Greg Dowling (04:15):

When did Fir Tree get involved in investing in SPACs?

David Sultan (04:18):

So Fir Tree got involved very early on in the second iteration in the '04 time period. There was one SPAC outstanding at the time. Funny story, I was out to dinner with a few friends--this is totally happenstance--and one of the people I was with said, "Meet my friend. He's a broker, he has a product. Why don't you talk to him and see what he's selling?" And I said, "Nah, we're just out hanging out, I don't really want to hear it. We're having fun." And he said, "No, no. You got to hear about this great product." The individual came up to me and said, "I got a great deal for you. You give me your money. And if you find a great deal, it goes up and you make a bunch of money. And if not, you get your money back."

David Sultan (04:53):

And I said, "Yeah, that only works in the movies." He said, "No, no, this is really how it works." And I said, "This can't be. This can't be." And he mentioned it to me and another two times, and I said, "It can't be." The next day he calls me in the office. I said, "All right, send me the prospectus." And I read through it. And it really worked that way. It was, "We put our money in trust. We get interest on that. We get warrants. And we get a free look at a deal." Now we had it read over by a number of well-known corporate law firms. We had done background checks on all the players involved. We asked to even see the bank certificates to make sure the money was going into a bank. We couldn't believe that this really worked the way that people said, you've put your money in. And it earns interest to get warrants. It's a free option, right? Free options don't exist.

David Sultan (05:33):

And that's really how the whole thing started. We said to the brokers, "We'll invest in any product you show us, as long as all the sponsors and the folks check out." But the idea of having a free option--or in many cases you are able to buy stocks at discounts to trust. So basically buying T-bills with a convert option at a discount--it seemed like a great thing. And from there, that's how it started. We had a standing 10% order in all the SPACs in the early days, and there just wasn't enough product until fast forward to today. Now we have plenty of product.

Greg Dowling (06:01):

As you pointed out--you gave a little bit of the history of SPACs--you have the 90s, you have the early 2000s. I think this might be wave 3. So how is this current wave different from the previous waves?

David Sultan (06:13):

The good part is now that SPACs have been around and evolved over the last 15 plus years, it's really now an asset class. There's a $100 billion plus of product out there. Everyone knows what a SPAC is--maybe your friend still thinks it's a spark, but my 10-year-old son knows what a SPAC is, and my parents even ask me what a SPAC is. It's no longer a dirty four-letter word. You know, "What is a SPAC? Who wants to do a deal with a SPAC?" We're really now fully institutionalized. The deal-makers, again, are the more key, top private equity VC folks on the planet. When you think about the caliber of people doing deals--whether it's Barry Sternlicht, Chinh Chu, Chamath, KKR, TPG, Hollow. Or even companies, whether it's a SoftBank or Liberty Media. It's amazing. This iteration has people who know how to get deals done. Not that in the past we didn't, but this is really the best of the best.

David Sultan (07:03):

The market size as well. Again, it's close to now $150 billion plus or minus, the number of SPACs is north of 500. There's a lot of folks out there looking for deals. Now, the other thing we talked about is structurally things have changed over time. In the early days, there were a lot more warrants and we'll get to warrants later. Now there are fewer--in some cases no warrants in a deal. Today, also, the PIPE market has developed. This, again, is another thing we'll touch upon later, which is a private investment in a public entity. This is supplemental capital to help get deals done. That's become a lot more robust. There are forward purchase agreements as well that allow sponsors to have a backstop to make sure deals can get done. All these things have evolved over time to really increase the likelihood of deals happening and ultimately to make a better product for everyone.

Greg Dowling (07:44):

That's interesting, how it's kind of professionalized and gone a long way to being a much more institutional asset class. So you had mentioned that in kind of that first wave in the 90s, they were there, but they got overrun by this IPO craze that we had starting in the mid-90s and going all the way up until the tech bubble burst. So why now a SPAC versus an IPO? There's been a lot of SPAC activity--in some cases more than IPO's. Why a company would choose one versus the other?

David Sultan (08:13):

I think a lot of this has really been an educational process for all people involved in the SPAC ecosystem and realizing the advantages of what a SPAC are versus a traditional IPO. A few of the big ones are: speed to market. Traditional IPO may take you a year plus to get all the pieces of paper in order, go through the filing process. A SPAC could take three to five months from finding a deal, announcing it, and closing it. Less time and less fees. And particularly in a volatile market where the IPO window opens and shuts, it may be harder to get the IPO done. Second issue or help is transparency. There's some more price discovery with a SPAC. The deal gets announced, the market reacts--was this too expensive, too cheap? The market likes it, doesn't like it. The deal may need to be recut. The deal may be called off and the sponsor may look for another deal.

David Sultan (08:57):

When a traditional IPO happens, oftentimes it comes at a set price. There's sometimes a lot of money left on the table. Sometimes it's priced too rich, too expensive. That price discovery mechanism isn't there. Third part is just flexibility in getting deals done. Things can be structured in different ways. It's not just, "Let's take the company public and raise stocks." Sometimes there's a PIPE that's a convert. Or sometimes there's another structured security, or maybe the seller is selling some amount, or maybe the seller's rolling their money in. There's a lot more flexibility in the structure than a traditional IPO.

Greg Dowling (09:24):

Now isn't it technically a merger versus an IPO?

David Sultan (09:28):

Yes, it is really a merger. It's not even necessarily a sell. Many times the seller--or the target being merged with a SPAC, I should say--ends up still controlling the vast majority of the shares. It may be effectively a minority stake going public. It's not just a mechanism to sell a company, it's a mechanism to take a company public, and oftentimes it's to raise capital for growth, de-lever, etc. And again, because it's a merger, the company has a little more flexibility about giving forward projections, which they don't have in an IPO.

Greg Dowling (09:56):

So if I'm a sponsor, what's in it for me?

David Sultan (09:59):

Well if I'm the sponsor, meaning the individual that I mentioned, these deal-makers who raise the public entity and then go out to merge with a private entity, they put up some money in order to take this shell company public. There are the usual banking fees, legal fees, DNO insurance, there's some money in there to due diligence when you're acquiring a target, and they put up a set amount of dollars to fund all these things. Should the sponsor not complete an acquisition, they lose that money. In the event they do complete the acquisition, they get a number of shares and warrants that generally are equivalent to 25% of the dollars raised in the IPO. Meaning if there was 20 million shares issued, the sponsor will get 5 million shares on completion plus a number of warrants that are in the money, then they'll make a very healthy return on their investment. However, again, if they fail to complete the deal, they lose everything.

Greg Dowling (10:47):

So it's really an incentive for the sponsor to get something done.

David Sultan (10:50):

A hundred percent.

Greg Dowling (10:50):

So if we go to how do we invest in these-- And maybe we'll take the most basic way first, or more of a individual investor, and then we'll talk about how Fir Tree or a hedge fund might do it. At the simplest level, an investor can just buy and hold a SPAC, right? Is that how it works?

David Sultan (11:05):

Yeah, and there's nothing wrong with that. Meaning, if you can get access to IPOs--which, sometimes it's harder, sometimes it's easier--you're buying into, again, a pile of cash, most of the time you get some warrants attached for free, and you have virtually no downside. Now, there are other periods in the SPAC lifecycle, there's buying on the IPO, there's buying it on the secondary after the IPO has happened but there's been no announced transactions. Sometimes SPACs trade at premium, sometimes they trade at a discount. Usually there's some correlation to the perceived likelihood of that sponsor getting a deal done. Then there's the moment when the deal is announced but the company hasn't technically de-SPAC'd. So they might say, "We're buying company X, Y, and Z," people get excited, and stock trades up. You may say, "Listen, I love that particular investment. I want to own more."

David Sultan (11:48):

The market's pricing it somewhat efficiently, but maybe it's good at $12 bucks versus the $10 IPO price. Or maybe sometimes the deal's announced and it trades down, but you may still like it and say, "Now I can buy it at a discount." And then, ultimately, at some point there's a vote. The company, de-SPACs, it becomes now a normal, freely traded public company. Whoever wants their money back is out, redeemed, and those who stay in now own shares in the company that can trade like any other stock. But now you're subject to all the whims of the market--whether the earnings are great, earnings are bad, the sector's good, something else happens--and the put right is gone. And again, there's plenty of money to be made there because sometimes some SPACs do great deals and sometimes not so good deals. Sometimes things sell off post the lockups or post when management or the sponsors can sell. And sometimes stocks are orphaned and other times they're overpriced. And so all the things or opportunities that normally exist when it comes to investing in stocks exist as well in SPACs, but, again, there are a number of technical factors that give you different periods within the lifecycle to invest.

Greg Dowling (12:45):

So if I'm hearing you correctly, it sounds like there's really three major phases. You have the management team sponsor creates basically a blind pool and it's cash and it just sits there. And investors can buy into this if they like the management team and their basic theme. And then there's this second phase where they're identifying a company--they haven't actually closed it, but they've identified a target and so therefore it may trade based on that. And then there's the last where, let's say, it gets done. It's fully done. And it trades just like a normal stock. Did I hear you correctly?

David Sultan (13:19):

Correct, 100%.

New Speaker (13:20):

We're talking about a sort of an individual investor. How does a hedge fund, like Fir Tree play this? Because there's a lot of different ways to play this. You talked about PIPEs and other ways. Maybe you can kind of elaborate on sort of the nuances of what you can do.

David Sultan (13:34):

There are two other key components or parts of the whole process that investors can invest in. The first being the risk capital or the sponsor capital, what we talked about early on, where the sponsor puts up a set amount of dollars to really fund the business until a deal's announced. In certain cases, the sponsors don't want to risk losing all that money themselves, or they perceive that there's some value-add of having certain investors who know the space and know how deals get done to be part or share in their risk capital or sponsor equity, and that's money that one puts up front along with the sponsor. It's locked up until usually well past when the deal closes, sometimes six months to a year after. The sponsor can earn healthy return on that capital, should the deal succeed. The risk again, though, is that no deal happens and one loses all their money.

David Sultan (14:19):

The other part that we touched upon earlier--this is something we look at as well and have invested in--is the PIPEs. These are the private investments in a public equity, and this is where the sponsor says, "Okay, I found a target. I found a deal. I've only raised $200, $300 million in my public shell in the IPO, but I need $500 million to merge or acquire this company." They go to a number of the big holders. They will make us sign a confidentiality agreement, restrict trading in the stock over the wall, so to speak and say, "Okay, we need another $200 million." Typically a lot of these have been done in the last several months at $10 as well, which is where the IPO occurs. And they come to us, the investor, they say, "Would you like to put more money in 10 now that you know what we're actually buying? Again, you're tied up and your fund in the deal closes, and now you own real stock, but you know exactly what you're buying. You know what the valuation is, and would you like to contribute more money at that price?" That is super important in many cases, because otherwise the seller doesn't want to do the deal if not enough cash is guaranteed to come in or just the SPAC IPO alone doesn't have enough. And so, again, it's another way to invest in SPACs where in this case, though, you know what they're actually buying.

Greg Dowling (15:23):

What are some other ways? I know you guys can play it 10 ways to Tuesday.

David Sultan (15:27):

There's plenty of other ways. Just, again, amongst all the things I talked about, whether it's the public SPACs in the ecosystem... Another thing we mentioned earlier is warrants. When a SPAC goes public, within a certain number of weeks after it's gone public, the unit splits into shares and warrants. Now you have two pieces trading separately. Sometimes the warrants get oversold, sometimes they get too expensive. Sometimes the shares are cheap relative one versus the other. And so there's a lot of optionality in the various pieces. Sometimes SPACs trade at big discounts and you're buying cash at enormous yields, that can also be super interesting. And then other times things get overvalued, like everywhere else. There are opportunities to short overvalued stocks.

Greg Dowling (16:04):

Can you get borrow on a SPAC? Do you have to wait to that third phase to really get borrow? How do you short us back?

David Sultan (16:11):

You can. Sometimes the borrower is very tough on things that are overhyped. Sometimes you can do it through options and sometimes you might just have to wait until something's de-SPAC'd and is a regular stock. And again, there's nothing particularly special about SPACs, it just becomes like any other stock post-de-SPAC.

Greg Dowling (16:24):

I think what's interesting about them is that there's these many layers, and every level has a different way you can potentially play it or strategy. A stock's a stock. At IPO could be overvalued, it could be undervalued. Here you have something that is a pool of cash. It has options. It can get very complicated. I know you guys play it in a handful of different ways that probably a retail investor couldn't, right? That's the one benefit of being Fir Tree or others in this space. You're known as being a value investor--Fir Tree. You have a value fund. Is there any value in SPACs? They seem like they're not much of a value. I guess the question I'm asking--is it a bubble?

David Sultan (16:58):

The value proposition for SPACs comes back to the very first thing I said, is the redemption rights/put option in many ways makes specs the ultimate value investor investment--particularly when they're trading at discounts to cash. You're basically buying T-bills at a discount with a free call option. So to me, that's what I think of as a value investment. In fact, over the last 15 years, we've used SPACs as really a cash surrogate in our credit funds where we can earn better returns, certainly on a risk-adjusted basis than any other cash alternative and even many fixed income alternatives. Just to put into context, in today's market... Think about high yield, the high yield index yields somewhere around 4% and change. That's nuts. I think you'd be lucky to get your money back at 4%. That assumes nothing defaults and rates don't move up. SPACs, as an asset class, have generated significantly higher returns over time, even not doing anything crazy on levered mid- to high-single digits, with not the inherent volatility, downside, and duration risk, you're taking in high yield.

David Sultan (17:55):

So in comparison, it's super attractive on an absolute and relative basis. And then to your second part of the question, which is a little more nuanced, is it a bit of a mania or a bit of a bubble? It's hard to say when the number of SPACs has gone from 30 a year to 10x that in one quarter, that there's not a little bit of a froth or over-excitement in the market. I think earlier in the year, there was a super amount of froth or over-excitement, where every SPAC would go public and trade up immediately. I think the market has come back to reality now where it's facts are trading plus or minus, like a pile of cash. Every deal doesn't get announced and go up an insane amount. But I don't think that's a bad thing. I think the market, again, is in a little bit more of a normal state--other than there are too many SPACs probably out there.

David Sultan (18:39):

There are going to be some deals that fail, which there were in the olden days too. This is no different with that many SPACs out there. Again, there's still room for plenty of SPACs to get deals done. If you think about the couple hundred billion in SPAC-land versus the trillions in private equity--and this is the number of vehicles around the world--there is plenty of room for plenty of deals to get done. But is it going to be everything works and everything trades up a tremendous amount? No. And, and again, I think it's healthy.

Greg Dowling (19:06):

Yeah. To your point, it's a market. I think that's fair. There's things that are overvalued and undervalued and if you can ever buy a pile of cash for pennies on the dollar, you should. I get the value piece of it. On the froth area, the fact that so many athletes, politicians, and musicians are backing SPACs points a little bit to some of that mania. What's the craziest SPAC to date. I know Shaq had a SPAC. Is there any other crazy SPACs that have come to market?

David Sultan (19:32):

I could probably go on for hours and hours of some of the craziest deals I've seen over the years. Companies going public that I didn't know of and suddenly we own 10% of some well-known brands overnight. Some of the names of SPACs that have been filed. But even just some of the things they bought or the mandate of them. The beautiful thing about SPAC is that ultimately it comes down to the deal. In many cases, you have a management team and they run out and they say, "I want to buy something in healthcare." And then they show up and they buy something in TMT. And everyone says, "How does that happen?" But you have to stock trades up. So my favorite are some of the cannabis SPACs--one of them bought a battery company and one bought something in the electric vehicle charging space and no one batted an eyelash. The stocks are still trading north of the $10 IPO price. If I told you that beforehand, you'd scratch your head and say, "How's that possible?" And ultimately it's like, everything else, a good investment will sell itself, and the deal will find the proper home, if it's a good deal.

Greg Dowling (20:25):

You had mentioned cannabis. The other one is EVs. And batteries would probably play a little bit of that. But it seems those are the two industries where--you put cannabis or EVs on a SPAC, it did trade up like crazy. Is that where maybe some of the froth is? Why those two sectors, for whatever reason, have attracted so much market attention?

David Sultan (20:43):

The SPACs, I like to say, reflect the market environment we're in. That's really all that's happening. Look around us, what's been super interesting or popular with investors? A lot of it in the last year has been spaces with a lot of growth. So whether it's EVs--and there are a lot of EV SPACs. Will they all succeed? No. It's like when they invented the railroad and they invented auto companies and we're down to three--two of which went bankrupt in a financial crisis and came back to life. Will we have 37 EV car companies in the long run? No. But these are high-growth areas where there's a lot of institutional attraction or interest. The SPACs can provide the growth capital. So whether it's EVs, there's been one or two crypto--I'm sure you'll see more crypto coming. Cannabis--big growth area--SaaS, software, the cloud, climate change, renewables, batteries, things that are the hot topic. Growth areas, by definition, lend themselves to targets or companies seeking growth capital. And that's what sells right now with investors. It doesn't mean the environment can't change. If we were in a value market you might see more corporate spin-offs or stocks coming at discounts in the energy space or the financial space. So it really just depends on the market environment.

Greg Dowling (21:47):

That makes sense. Especially if you can get to market quicker. You need growth equity, boom, here you go, here's the SPAC. So I guess that you're right, it just reflects the market. So cannabis, EVs, crypto, and renewables, we shouldn't be surprised that there's a lot of those in SPAC-land. There's nothing specific about SPACs other than they're just a vehicle and structure that's out there and easy to use and quick to market. There's been a pretty big pause in SPACs. You pointed it out earlier. Really, I think of the fourth quarter and beginning of the first quarter as being this avalanche of SPAC activity. And then all of a sudden, it's kind of slowed up a little bit. Some of that's been based on comments from the SEC. So maybe you could shed some light on some of the issues the SEC is discussing and provide any thoughts that you have on it.

David Sultan (22:35):

Listen, anytime you have an excessive amount of a product being issued by Wall Street, people and investors start to scratch their head and say, "Okay, is everything being done here in the most thoughtful matter?" And I think, again, there was a lot of overly promoted hype in getting any SPAC IPO that could get done. And the SEC rightfully said, "Listen, I want to make sure that investors are being protected," which again, we think is the healthy right thing to do. And so whether that's statements they've made regarding SPACs, where there were athletes or politicians, folks involved to attract people to invest but didn't necessarily correlate with, "Is this going to be good investment vehicle or not?" Comments on projections reminding SPAC sponsors that investors rely on these projections and they should be made with the best available information. And then the issue of warrants has come up lately, which is a technical accounting issue, but one that--whether they're counted as debt or equity--something that has to be understood and to slow down the process.

David Sultan (23:28):

But all of these things centered around protecting investors, and I think that that is a good thing. We're investors, of course we want the most reliable, best information we can have. Disclosure is always good. It's another area where--disclosing who is putting up that risk capital, the sponsor capital. Which, again, disclosure is always better, more is good. And then I think it's healthier for the whole SPAC product. We want good sponsors to bring good deals with good information and good disclosure, so investors can make informed decisions which ultimately lead to healthier companies on the back-end. And that will continue to allow the product to evolve and serve its purpose. So I think, again, there's been a slow-down--a combination of one, the SEC examining the warrant issue, and then secondly there was just too much product. I think the market sort of said, "Slow down a little bit. We can't digest this much." And so all these things will lead to more thoughtfulness on what gets IPO'd and on what terms. And then ultimately in the de-SPAC process, the more disclosure and some other tweaks will help everyone make the best-informed decisions.

Greg Dowling (24:26):

So what's next for SPACs? Is it just sorting through these issues? Doesn't go away. There'll be another wave and it'll continue to improve. What are your predictions?

David Sultan (24:36):

I think it's as simple as that. I don't think SPACs are going away now. Again, close to $200 billion of product out there, or waiting to go public. The market does have a lot of capital to digest right now. So, again, we have to work through a lot of the existing SPACs, the number of deals that have been announced that will close shortly, which will recycle some capital back into the ecosystem. There are a number of sponsors that are working on deals right now, where they're out there raising PIPE money. And there are a number of SPACs that may just not get done. But it will ultimately continue to evolve as it always has, meaning there's been SPAC wave 1, 2, 3, 3.0, 3.1, 3.2... And the idea is, again, to create the product that aligns incentives among all the participants and creates wealth for everyone. I think given how institutionalized it's become, it's not going away. Again, will it continue to get better? Of course.

Greg Dowling (25:19):

I think having fair and safe capital markets and capital creation is a good thing. And some of the names that have been thrown out in terms of going the SPAC route, I mean, these are real companies. Grab, WeWork. There's plenty more. So this is now a legitimate option versus IPOs. Any parting thoughts with that, David?

David Sultan (25:37):

I just emphasize and repeat everything I've said all along. I do think SPACs are here to stay. And as you said, they're real companies going public with them. And I hope that we all can continue to make the product better and ultimately have more disclosure for investors and make sure that people are making informed decisions.

Greg Dowling (25:53):

If you're a institutional investor out there, you may be asking, "Well, how do I participate?" You know, chances are pretty good if you have a multi-strat hedge fund that they are investing in SPAC. So you probably already have SPACs in your portfolio and don't even know it.

David Sultan (26:07):

Right, it's impossible to avoid.

Greg Dowling (26:08):

Well, David, if you don't mind me saying that was SPAC-tacular. So thanks for joining us.

David Sultan (26:14):

Thank you.

Greg Dowling (26:15):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications. And don't forget to subscribe to our communications at so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.


This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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