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SPACs: 2022 will be ‘a wild ride’ but the deals ‘aren’t going to be all that great,’ professor says

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Georgetown University Assoc. Professor James Angel joins Yahoo Finance Live to discuss the SPAC market's outlook for 2022, how best to invest in SPACs, potential SEC regulations, and meme stocks.

Video transcript

BRIAN SOZZI: It's been a wild year for the SPAC market, and the fun may not yet be ending as the SEC is prepared to crack down on the space. James Angel is a Georgetown University professor and follows the industry very closely. James, nice to see you again. So what do you think next year will bring to this?

JAMES ANGEL: Well, I think next year is definitely going to be a wild ride. Clearly the SEC is going to tighten up on SPACs. Now, we have a number of SPACs that have gone public in the last two years, and their two-year clock is ticking. So we'll have a number of SPACs get very desperate to do deals, and they're going to bring some deals to the market that aren't going to be all that great.

So we can expect to see more BuzzFeeds where the promoters get their 20% but, if you're smart, you'll bail out when you have the chance. And that's what I love about SPACs because SPACs give the investor the opportunity to look at the deal and bail out if they want.

JULIE HYMAN: James, you can argue that we've already seen some companies maybe rush to market that shouldn't have been. I mean, if you look at the numbers for this year, it is just astonishing the number of SPACs that have come to market, both the companies that-- or the shell companies that have come public-- we got some figures from Dealogic on that front-- and then this sort of de-SPACing, if you will, when they actually complete the merger and then go public. It's been pretty amazing.

What do you think? You know, there have been some-- a rollover in performance in the latter half of the year in particular. What do people need to know when they're looking to invest in one of these things?

JAMES ANGEL: Well, you need to be very careful how you invest, and you need to know what your investment strategy is. Now, to buy a SPAC when it goes public, you pay $10 a share. And then when they bring you the deal, you get the chance to get your $10 back. And if you like the deal, you can stay in. If not, you get your money out. So that's what I love about it.

So if the SPAC announces a really great deal and it jumps up, wow, that's great. And if they announce a deal you don't like, you walk. So that's the good thing about the SPACs.

But, as with any investment, you have to do your homework very carefully. Do you trust the promoters? Remember, a SPAC is kind of a poor man's private equity. With private equity, what you do is you give your money to a private equity firm. That is if you're rich enough to get in and you're friends with the right people, they'll invest in a portfolio of companies, and then years later you'll see how you did.

With a SPAC, you give your money to a promoter. They go out. They find a deal for you. You can stay in the deal if you want, or you can exit at any time, and it gives you the opportunity to get into a lot of these companies when, before SPACs, you might not have been able to. But as with any investment, there are a lot of risks involved, and you have to do your homework.

BRIAN SOZZI: You mentioned, James, that the SEC will likely tighten the rules on SPACs. What type of new rules and regulations do you anticipate?

JAMES ANGEL: Well, I think they're going to look very carefully at the de-SPAC transactions. They're going to basically make sure that there's enough disclosure there so that investors can actually make a good decision.

Now, of course, right now with de-SPAC transactions, you know, I get-- for every SPAC I'm in, I get a disclosure document literally this thick, which talks about-- let's see, do I have any the shelf here?

BRIAN SOZZI: There's got to be one there somewhere, James. There has to be one.

JAMES ANGEL: Yeah. Here's one of them right here, OK? Yeah, this is the kind of disclosure. So the SEC is going to look at these and say, oh, you need more disclosure. We don't like what you did on page 300. That's what the SEC is going to do.

JULIE HYMAN: I mean, James, you know, what we frequently get amused by here is the promises that are made in these SPAC documents as well, right? Like, you mentioned BuzzFeed as one of the companies that went public. We also interviewed the folks over Zegna which went public through a SPAC, this deal, which is, you know, sort of a historic luxury-- Italian luxury goods company.

So when you look at the promises that various companies are making, do you think that the SEC needs to regulate those away to some extent? An IPO, for example, can't make those same sorts of projections.

JAMES ANGEL: Well, maybe IPOs should be allowed to make projections. The real question is we want investors to have good information.

Now, with any SPAC, you have to ask yourself, do you trust the promoters? Do they have a track record of bringing good companies public or are they somebody who's just joined the boom? And we know most booms end badly. So you always have to do your homework very, very carefully. But yes, the SEC is going to be very concerned about what kind of projections are being made.

BRIAN SOZZI: James, I know you also follow the meme-stock rise as well very closely, and you've been speaking a lot with us right now about this trust. You have to trust people. If you are still an investor in AMC and a GameStop and you've seen your stock just absolutely slaughtered from the highs of the year, should you still trust the executives at these companies?

You have AMC CEO Adam Aron dumping a large part of stock. You have GameStop's new executive team not coming out with any plans to save this company. What say you?

JAMES ANGEL: Well, I always say watch what the executives do. When they're selling their shares, that tells you something. So you see Elon Musk exercising his options and selling even before he has to. That tells you something. When you see the folks at AMC or GameStop, you see what they're doing, actions speak louder than words.

BRIAN SOZZI: So very true. James Angel, Georgetown University professor who follows all these spaces very closely, good to see you. Have a Happy New Year.

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