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EisnerAmper Partner on SPACs: People stay home and look for new ways to invest their money

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Nick Tsafos, Partner-in-Charge of New York at EisnerAmper joins Yahoo Finance Live to weigh in on the outlook for SPAC stocks in 2021 and beyond.

Video Transcript

MYLES UDLAND: We're going to talk a little bit more about SPACs right now. Nick Tsafos is the Partner-in-Charge of New York over at EisnerAmper. Nic, thanks so much for joining the program this morning. I'd love to begin by just talking about the SPAC boom we've seen in the last six months, how it looks from your vantage point, and how quickly things have changed in that environment in that time.

NICK TSAFOS: Good morning, Myles. Thank you for having me on the show. So yes, we have seen a tremendous increase in activity, as you noted, in the past six months, year. And we continue to see that activity. As a matter of fact, we had another 20 or so SPACs go public this month.

And like your earlier guest said, people are sitting home. They're trading. They're looking for ways to invest their money. Interest rates are quite low. And they have caused people that are moving into the equity markets and getting into a SPAC gets an investor in earlier into a private company, in effect.

BRIAN SOZZI: Nick, are these stocks-- when a lot of these SPACs ultimately become public companies, are they poised to be disappointing stocks out of the gate? I bring that up because we've had a lot of these SPAC executives on really pontificating on very bullish-- very, very bullish forward growth projections-- that, realistically, they are unlikely going to be able to deliver on any time soon.

NICK TSAFOS: A SPAC is like any typical investment. I think you have to run a SPAC through the typical investment criteria that you would go through with any company. So whether the SPAC sponsor or executive is on there touting the SPAC and the operating company that they're going to acquire, I think an investor has to do their due diligence and kick the tires a little bit, in effect, and find out what this company is really about.

Look at the past performance of the SPAC sponsor-- usually, a lot of these sponsors are in private equity-- and see what expertise they have in the industry that they're investing in. So not only does an investor have to look at the company that is being taken public through a SPAC, but also look at the SPAC sponsor as to what they're going to offer to that company through the SPAC.

MYLES UDLAND: You know, the fact that it seems-- and I'm curious if it seems this way to you as well. It seems there's a couple of industries that are most sponsored, if that makes sense. Renewable energy is certainly one. We've seen some pharma plays as well. Does that say anything, from your vantage point, about how the structure is best used, how the structure is working around the edges of capital markets at this point? How does that play into your analysis?

NICK TSAFOS: I would say at EisnerAmper, we are accountants, tax advisors, and auditors to many investment advisors. And through their analysis, and what we're seeing, is that there are industries where the SPACs work very well. They bring capital to the markets to help, let's say, fragmented industries come into the public markets and cause some consolidation.

I also think, or have seen SPACs on the fringes where, when you take COVID-19 and the displacement it has caused, providing capital to industries that have been negatively affected through this turmoil. And what that means is when you look at hospitality, travel, bricks-and-mortar retail-- when the economy is going to come back, I think the capital that SPACs could provide will give an uplift to those industries.

MYLES UDLAND: You know, I'm also curious about the diligence that is required to go public, both via the SPAC route and via traditional routes. Ultimately, you have to file the S-1 either way. It's just a timing question.

Do you think that SPACs really do significantly change some of the regulatory burdens that we hear from private companies about, that's the reason why we didn't go public. We didn't want to deal with the SEC. We didn't want to have to file all this stuff.

Do you think that SPACs change that equation? Or are people not quite seeing, you know, maybe the way that you are still, again, beholden to all those disclosures, maybe just on a slightly different timeline.

NICK TSAFOS: That's an interesting question, Myles. So when a company goes public through a traditional IPO, they go through the S-1 registration process and all the scrutiny of the Securities and Exchange Commission, and all the regulators that are involved, whereas in a SPAC it's in effect a reverse merger. And a company with the flip of a switch, in effect, becomes a public company and has to adhere to public company rules and regulations.

So I think where the issue comes in for a SPAC sponsor is getting that company ready to be a public company. And that's where a sponsor can add value, getting them ready so they are compliant right off the bat. And that takes some time.

And a traditional IPO process takes, obviously, much longer than a SPAC, because of all the scrutiny and the roadshows and all that stuff. However, with a SPAC, getting ready to be a public company and being a public company on day one is just as important, because you really don't want to be in a position where a company becomes public and they're not in compliance with the rules and regulations of the Securities and Exchange Commission or the stock exchanges that they listed on.

BRIAN SOZZI: Do you think we've reached peak SPAC issuance for this year? We've seen a tremendous amount of volume here in January, and also kicking off February 2 as well.

NICK TSAFOS: That's hard to say. SPACs have had many cycles. It's not a new investment vehicle. It's been around for a number of years, probably around 30 or 40 years. Cycles come and go.

However, I think with the decrease in the number of public companies out there-- about 3,300 public companies leaving out the 200 or so SPACs that went public in the past year and a half-- I think there is some room for SPAC to continue. I also think that you are seeing a lot of SPACs out there that need to do deals, because the typical lifespan of a SPAC before it does a deal is two years.

So it's hard to say if we're at a peak or if the SPAC mania-- let's call it that-- is going to fizzle out. I just think that there's money out there that's looking to be invested. And SPACs provide to the retail investment a way to get into companies that will otherwise stay private for a longer period of time to get access to that growth.

MYLES UDLAND: All right, interesting conversation. Again, I don't think the SPAC discussion-- whether there's more in the future or not, certainly not a conversation we're going to be dropping anytime soon. Nick Tsafos, Partner-in-Charge in New York over at EisnerAmper. Nick, really appreciate you taking some time to talk with us this morning.