There are three ways to play special purpose acquisition companies (SPACs), the blank-check public companies that are a current investor fad. The most popular is to bet on the founds, the high-risk, high-reward play of Soaring Eagle Acquisition (NASDAQ:SRNGU) stock.
Soaring Eagle Acquisition isn’t the only way to play. You can also buy the SPAC after it announces a deal, as with Social Capital Hedosophia Holdings V (NYSE:IPOE), which is buying SoFi, the online financial company.
When you bet on the SPAC’s founders, as with Soaring Eagle Acquisition, you are buying their stock before you even know the target. Soaring Eagle was announced just last month.
SRNGU stock is the seventh blank-check company launched by the team of Harry Sloan, Jeff Sagansky and Eli Baker. It began trading Feb. 24 at $11.50 per share. As SPAC fever has cooled its value has fallen to a little over $10.
The team calls itself Eagle Equity Partners LLC. Its best-known deal came last April, when its first SPAC, Flying Eagle, turned into DraftKings (NASDAQ:DKNG). This has been a home run for investors, more than tripling to about $65. Last December, the team took the mobile game platform Skillz (NYSE:SKLZ) public. Those shares traded as high as $43 in February, although they have since stumbled to $18.
People who play the game say the best time to get in is now, when you’re basically buying cash. The eight to 13 months between a deal announcement and its closing acts as an extension of the old brokerage road show. It’s when the target often looks its best, because the sponsors, the target and brokers are all pushing it. Once the deal is done, the speculative fever will dissipate, as happened with Skillz.
Under this theory now is the time to jump on SRNGU stock. Shares are trading at about their “redemption value,” so if no deal is done by February 2023 you get your money back. The new SPAC has $1.5 billion to invest, so it might attract something nice.
The Esports Boom
Videogames have been transformed lately into esports. Players with quick minds and itchy fingers are becoming stars, people paying to watch them play, promoters offering big prizes and competition. The pandemic has only benefited this sector. People can become athletes from their bedrooms.
This is likely where SRNGU’s money will be looking.
Another possibility is Play Versus. It runs esports leagues in high schools and claim 20,000 members.
The Eagles might even go after Epic Games, creators of Fortnite, which is fighting its own epic battle in court (and before regulators) with Apple (NASDAQ:AAPL). The big play here would be in Epic’s Unreal Engine, a 3D rendering system used to create its games.
The Bottom Line
As I noted at the top, all this is pure speculation. You don’t have numbers, you don’t even have a target to dig into, with SRNGU stock.
You just have the Eagle track record, which so far is pretty good.
With SPACs out of favor, however, now may be your best chance to do some speculating. SRNGU stock is trading very near its redemption price, so your downside risk is minimal. Most SPAC stocks soar, at least for a while, after a target is identified, as the hype around it builds.
If you do decide to play, just remember to stay abreast of the news and be ready to bail soon after you know what’s being bought. That seems to be the SPAC sweet spot.
At the time of publication, Dana Blankenhorn owned shares in AAPL. He did not hold (either directly or indirectly) shares of any other equities 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 firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.