SHAQ AND A-ROD have gotten involved in special purpose acquisition companies, or SPACs, one of the hottest products on Wall Street over the past year. I got there a few years earlier.
In 2018, I invested $5,000 in a SPAC that has since underperformed the market. Still, I got some hands-on experience ahead of the 2020-21 boom. Thinking of buying a SPAC? Based on my investment, here’s what you can expect.
Tom Farley isn’t a household name like Shaq or A-Rod, but he is a star in the field of business—and he was one of my classmates at Georgetown University. I’ve watched his career as he rose from being an investment banker in the late 1990s to become president of the New York Stock Exchange in 2014. In 2018, Farley left the NYSE to lead a SPAC called Far Point Acquisition Corp. After reading Far Point’s prospectus, I purchased 500 shares at the offering price of $10 per share.
The prospectus indicated Far Point would target companies to acquire in the “financial technology, technology or financial services industry.” While this approach seemed compelling, I was mainly investing in Far Point based on the track record of its sponsors, including Farley. My view: When investing in a SPAC, you should focus on finding a team of sponsors who can identify an attractive target and successfully complete an acquisition.
As with most other SPACs, Far Point had 24 months to identify an acquisition target. If Far Point’s sponsors couldn’t identify a target during that time, they would return the funds invested to shareholders.
For most of the first two years I held Far Point, there was limited news about the company and there was little change in the company’s stock price. Of the 548 trading days between the company’s IPO (initial public offering) and the date that it completed an acquisition, its stock price traded between $9.50 and $10.50 for 515 of those days, or 94% of the time. The steady price reflected the fact that Far Point was simply holding its IPO proceeds, while it sought out an acquisition target.
Finally, in January 2020, Far Point announced a $2.6 billion deal to merge with a privately held Swiss company, Global Blue. After amendments to the initial terms were made because of the business disruption caused by COVID-19, Far Point shareholders—including me with my 500 shares—voted in August 2020 to approve the deal.
For Far Point stockholders who didn’t want to hold stock in the merged company, they were able to redeem their shares with the company for close to the $10 offering price. Prior to the merger, Far Point stockholders were also free to sell their shares on the open market, just as they could have since the time of the IPO.
The upshot: I’m now a shareholder in a company that processes duty-free shopping payments. On Aug. 31, 2020, the date the merger was completed, the Far Point shares in my brokerage account became shares in Global Blue Group Holding (symbol: GB). My initial investment in a relatively dormant entity has now turned into an investment in an bona fide business that processes duty-free shopping payments. Unlike Far Point’s relatively steady stock price, Global Blue is subject to the ups and downs of the global economy, as illustrated by the trading range of $6.82 to $13.75 since the merger was completed.
While I didn’t set out to buy a duty-free shopping payment processing company in June 2018, I am sticking with it to see how things play out. As I see it, I’m also continuing to invest in Tom Farley, who is the chairman of the new firm.
Kyle McIntosh, CPA, MBA, is a fulltime lecturer at the California Lutheran University School of Management. He turned his career focus to teaching after 23 years working in accounting and finance roles for large corporations. Kyle lives in Southern California with his wife, two children and their overly friendly goldendoodle. His previous articles were What $1,000 Can Buy and Shifting Gears. Follow Kyle on Twitter @KyleGMcIntosh.
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Kyle did you have any warrants to the holdings?
Sorry for the late reply James. I didn’t get any warrants upon the initial purchase – only the shares in FPAC which later converted to shares in GB