There’s little doubt that power-investor William Foley’s blank-check company Foley Trasimene Acquisition Corp (NYSE:BFT) has street cred. The question remains, for me at least, who will these special purpose acquisition companies (SPACs) benefit in the long run?
Last year, as the pandemic hit, few investment banks were interested in launching IPOs unless they were solid companies. The market was just too far in uncharted territory, plus it was a very tempestuous election year.
So, the Street turned to SPACs, a creature that had been around a while but rarely used, since most companies could find a way to IPO through more normal channels. But last year, SPAC launches soared 462% year-over-year and made up 50% of the IPO market in 2020, at a value of nearly $80 billion.
People talk about what Reddit investors are doing with select stocks, yet no one seems to blink when the Street breathes life into an odd investment vehicle. And this is more concerning.
The American Way
Yes, there’s something to be said for maverick CEOs and founders finding ways to build success with companies they want to succeed. But going public means they’re doing it with other people’s money. Or, in many cases, their own in a very abstract way.
For example, BFT is just one of Foley’s investments. And he has certainly built a solid reputation in the mortgage settlement and financial payments world as well as others. But his companies are also big investors in BFT and its recent acquisition of payments company Paysafe.
On the one hand, that means his organizations believe in the SPAC. On the other, it’s moving money out of one company to raise the visibility of another publicly traded company. It’s not shady, but it shows that the Foley’s companies are dropping larges sums into the deal when the money may be used for better purposes.
If I’m making shoes and my biggest customers are my family, is that really a shoe company on the way up? Maybe?
On the upside, it’s a great way to fund the company until it gets traction. However, if one or more company stumbles, they all stumble. And the stockholders across the companies take a hit.
Certainly, BFT owner Foley has a significant pedigree in the financial space. And his holding company, Cannae Holdings, has put $500 million into its current deal with Paysafe.
And there’s a great deal of opportunity for Paysafe, a London-based payments company similar to PayPal (NASDAQ:PYPL). Given all Foley’s other ventures, there may be opportunity to use Paysafe for his other enterprises. This would add business to Paysafe’s books, raise its visibility in the U.S. and hopefully boost margins in the other businesses.
And if it all works, as planned, it may well be a very good investment.
Not for KISS Investors
However, if you just want a straight up deal where a successful investor launches a SPAC and seeks out investors to buy a good company with potential, this isn’t it. This is a complex deal and that usually means there are complexities if it’s successful. And it also raises more risks if the deal goes south.
I’m just not a big fan of most SPACs. And just because a lot of people are doing them doesn’t mean it’s a good idea. A lot of Wall Street players were in the mortgage markets up to 2008 and that didn’t go so well.
The point is, Wall Street has a lot less to lose than individual investors. And even if you have last year’s holiday money sitting around, it doesn’t mean you have to speculate with it.
There are plenty of great companies already listed that are worth buying, even in the space Paysafe is in. Let the Wall Street gods play around with this one. Mere mortals have better options than these Wall Street creations.
On the date of publication, GS Early has no position in the stocks featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.