Even activist hedge fund Elliott?… The spec craze on Wall Street

With the popularity of Paper Company SPAC, which aims to mergers and acquisitions, from large hedge funds to politicians and former athletes, they are jumping into the establishment of the specification. Central photo

Recently, there is a place where the American financial world is drawing attention. It is a’SPAC’ created solely for corporate mergers and acquisitions (M&A). Over 90 trillion won, the largest ever, was invested in a’name company (Paper Company) that exists only on paper without an office or staff.

As the spec began to gain attention, from large hedge funds to politicians and sports figures, they are jumping into the establishment of the spec. It is said that Paul Ryan and former US Speaker of the House of Representatives set out to establish a spec for Billy Dong-do, the real protagonist of the movie’Money Ball. The most recent hot topic is Elliott Management, an American activist hedge fund.

According to the Wall Street Journal (WSJ) on the 7th (local time), Elliott is in contact with banks to raise $1 billion (about 1,123.5 billion won) to establish the spec. In the past, Elliott was known in Korea as he opposed the merger of Samsung C&T and Cheil Industries and made a problem with the reorganization of Hyundai Motor Group’s governance structure.

‘Paper Company’ for corporate acquisition… Passage of bypass listing

SPAC listing structure.  Graphic = Reporter Park Kyung-min minn@joongang.co.kr

SPAC listing structure. Graphic = Reporter Park Kyung-min [email protected]

SPEC stands for’Special Purpose Acquisition Company’. Paper Company whose sole purpose is to M&A with unlisted companies using the funds after public offering and listing on the stock market. It is classified as a kind of’special purpose company (SPC)’ that raises the value of a company through M&A and returns the profits to investors.

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The reason spec is attractive to companies is that it can be used as a shortcut for listing. Normally, in order for a company to be listed on the stock market, it must publicly recruit investors through an IPO. As the process is complicated and demanding, it may take 2-3 years to list. On the other hand, M&A with specifications can greatly shorten time and procedures.

The way the spec works is the opposite of the regular corporate IPO. A company (sponsor) seeking gains from listing establishes SPAC, a paper company that acts as an’empty shell’, and first raises funds with investors. Based on this, after listing the spec on the stock market, it searches for companies to M&A. Investors are investing in SPEC’s M&A, not companies. It is also called a’blank check company’ because it first raises funds and then searches for mergers and acquisitions.

‘Scam controversy’ merged with Nikolao Spec

American hydrogen car manufacturer Nikolao, who was at the center of the ‘scam controversy’ last year, entered NASDAQ through a merger with SPAC.  The photo shows the concept car Tre, the third hydrogen electric truck introduced by Nikola.  Photo nicola

American hydrogen car manufacturer Nikolao, who was at the center of the ‘scam controversy’ last year, entered NASDAQ through a merger with SPAC. The photo shows the concept car Tre, the third hydrogen electric truck introduced by Nikola. Photo nicola

The spec allows the merging company to enter the stock market faster than going through a typical IPO. It is attractive to investors seeking gains from listing. Since the amount of procurement has already been determined through the public offering of specifications, it is also advantageous in terms of corporate valuation. If an M&A company is not found within two years (three years in Korea) after being listed on the US stock market, investors can receive both principal and deposit-level interest. It also means stability.

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A representative example of a detour listing through SPEC is the hydrogen car manufacturer Nikola, who stood at the center of the’scam controversy’ last year. Nikola hasn’t sold a single car since its establishment in 2014, but thanks to its prospect and vision for hydrogen cars, it entered the NASDAQ last year. This is because it was listed by way of a merger with the spec’Vecto IQ’ in June of last year. A total of 700 million dollars (about 780 billion won) was raised to Nikola through the spec stock offering. It was even listed on a sport where Seohak ants bought a lot.

Last year’s spec financing’the largest ever’… Concerns about “lack of verification”

US exchange listing specification (SPAC) trend.  Graphic = Reporter Park Kyung-min minn@joongang.co.kr

US exchange listing specification (SPAC) trend. Graphic = Reporter Park Kyung-min [email protected]

The market size is also growing rapidly. Last year, the amount of financing for SPEC, listed on the US exchange, reached a record high of 83.2 billion dollars (about 92.934.4 billion won). In 2018, it increased 677% from $10.7 billion (about 11,951.9 billion won). As of the 17th of last month, at the beginning of this year, a listing of about $15.7 billion (about 17.52 trillion won) is expected, and the growth of the spec market is expected to continue.

There are also voices of concern about the spec craze. It is pointed out that the possibility of being exposed to risks such as overvaluation of companies that do not meet the requirements for listing will not be filtered out by bypass listing through specifications.

Lloyd Blank Payne, former CEO of Goldman Sachs, told CNBC on the 25th of last month, “If the specification is released to the public, only the empty shell company will be verified. “It is different from,” he said. “There may be a situation where investors lose money (because the value of the company is inflated).”

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Reporter Yoon Sang-eon [email protected]


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