Buying a SPAC before it has a target is gambling on the SPAC’s sponsor.
Buying Pershing Square Tontine Holdings (NYSE:PSTH) stock means betting on Bill Ackman.
A special purpose acquisition company (SPAC) without a target is like a suit you’re picking up at the dry cleaners. It may smell nice, but it’s empty. You’re gambling the sponsor buys something that can jump quickly in value.
There are plenty of rumors about what PSTH might buy. These range from the Subway sandwich franchise to the Coinbase cryptocurrency market to Pornhub. But until a name is identified the only one that matters is that of Bill Ackman.
What Ackman Wants
According to the PSTH S-1 document, Pershing Square Tontine is seeking an investment with predictable, growing cash flows, in an area with high barriers to entry, an attractive valuation and exceptional management. This just in: I want a pony.
The document, in short, tells us nothing about what Pershing Square might buy. It makes more sense, then, to look at what Ackman has bought in the past.
That record is spotty.
He has had some winners, like getting Wendy’s (NASDAQ:WEN) to spin off Tim Horton’s, which was later gobbled up by Brazil’s 3G Capital through Restaurant Brands (NYSE:QSR). He also bought Valeant (some of which is now Bausch Health (NYSE:BHC)) while it was rising. He bought the now-bankrupt J.C. Penney (OTCMKTS:CPPRQ) at $22. Total returns between 2012-2017 trailed those of the S&P 500.
Ackman’s best-known position was a short, in Herbalife Nutrition (NYSE:HLF), where he found other big hedge funds on the other side of the trade and nearly lost everything. (Gamestop (NYSE:GME) pajama traders should take note.) His financial credibility today comes from a bet he made against the markets a year ago, a hedge against the pandemic market crash. He made $2.6 billion, and PSTH is the result.
The Ackman Call
Despite owning nothing, PSTH stock has been popular since its mid-September debut at $20/share. It’s up 45%. It’s the market’s Seinfeld.
Why? Our Will Ashworth calls Ackman’s bet against the markets “the trade of the century.” He notes that the last two years have seen a return on assets of 58%, then 82%. He’s not worried that the SPAC has gone for months without a deal, saying the average SPAC transaction takes nearly a year to finalize.
Mark Hake is right. Until a target is identified, PSTH is just a massive gamble. On the other hand, gamblers have been beating investors handily in the current market. Real companies must deliver growth and earnings. Gambles don’t have to. Lancadia Holdings II doubled in price while waiting to become Golden Nugget (NASDAQ:GNOG), which has done nothing for investors since the start of the year.
The Bottom Line on PSTH Stock
I’m not a fan of Bill Ackman. I was dumping on him back in 2013, long before it was cool.
Even Ackman’s big win was that of a shark, not an entrepreneur. He bet on a crash and turned out to be right. Is that a man who knows how to grow a company? I don’t think so.
I’d rather do what Bill Ackman is claiming to do than hire him to do it. PSTH is seeking growing cash flows, high barriers to entry, attractive valuations and exceptional management. Such companies are out there, but there are no shortcuts to finding them.
At the time of publication, Dana Blankenhorn owned no shares (directly or indirectly) in any companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.