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Here’s why investors should buy tech SPACs in 2021

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Zachary Tarica, The Forest Road Company CEO of Forest Road Acquisition Corp. II COO joins Yahoo Finance Live to break down how the SPAC market is faring amid the pandemic.

Video Transcript

JULIE HYMAN: Most of the folks who start special purpose acquisition companies are longtime investors, many of them retired executives. Our next guest, though, is going to hold down two gigs. He's CEO of the Forest Road Company, and now he is chief operating officer at Forest Road Acquisition Corp. 2, Zachary Tarica. Zach, thanks for being here.

You guys are looking for an acquisition in technology, media, telecom, and consumer-- Forest Road, the first SPAC that you guys started, is in the process of acquiring Beach Body. And I am curious about this sort of dual role here, because, as I said, a lot of the people we talk to are longtime investors, but you actually have a day job, so to speak. So why did you guys decide to go SPAC when you have this other business that you're working on day to day?

ZACHARY TARICA: So the existing business we have allows for us to lend and service tax credits. When you understand the company's tax situation, you really get to look under the hood and be an operator-led investor. And so it was complimentary to explore this new SPAC process.

MYLES UDLAND: And you know, Zach, when you look out in the marketplace right now, obviously a lot of people looking for targets. Like, when you formed this SPAC group and then you bring the sponsors public, do you have a handful of names in mind? I mean, how does that intelligence process play out? Do people start knocking on the door when the S-1 goes out? Talk us through some of those dynamics.

ZACHARY TARICA: The SPAC's been around for a couple of decades. In the initial innings of the SPAC product, you had to convince a company to learn about a SPAC and what it was. Today, it's so mainstream with over 400 filed for IPOs in 2021 alone. So that battle is fought for us.

And then when you pair it with Tom Staggs, former CFO and CEO of Disney, Kevin Mayer, former CEO of TikTok, we have a lot of companies that are coming for us, which is a good feeling. And we're looking to do and involve ourselves in situations where we can really add a lot of value to a great private company in the hopes of making it an exceptional public company.

BRIAN SOZZI: Zach, are you starting to get concerned about some of the expectations SPACS are putting out? i think a lot more scrutiny has started to come to the SPAC space on some of these targets. And frankly, I have never seen some of these just really aggressive sales and margin targets-- looking out to 2030 in some cases. Is that going to eventually bite these companies in the rear?

ZACHARY TARICA: Yeah. I think that's a market question, not a SPAC question. There are IPOs-- obviously, the big difference is the ability to use projections for a SPAC product. And I think we'll see evolution in both. But yeah, it is. I think from our standpoint, we are looking-- and we can talk a bit about Beach Body-- but a 20-year-old plus business that has, for two decades, executed.

We are not hyper-focused on pre-revenue companies, but I think they're binary. And I think as long as investors understand the risk-reward, some of these no revenue companies are going to be $50 billion businesses, others are going to be zeros. And so as long as investors, both institutional and retail, understand the risk-reward profile, the SPAC product is a great way for companies to access the public markets.

BRIAN SOZZI: How can investors avoid that zero? What should they be looking for?

ZACHARY TARICA: Yeah. I think from our standpoint and the process we went through-- we had some of the most sophisticated institutional investors, both through an IPO and a pipe process. And I think if investors are doing the work and looking at the public filings, they are going to make bets based on what they believe total addressable market is, based on what they believe the financial statements of that company should or could look like.

And they're going to make a bet on management, which is another way of looking at the SPAC product as a validator of companies going public. In the old way of the IPO, there were a handful of banks that were able to gatekeep your ability to access the public markets. And what the SPAC product is doing is allowing companies to want to bet on someone like Tom Staggs, and Kevin Mayer, and the team at Forest Road to validate a story and to add operator value to their platform.

JULIE HYMAN: I do want to ask about your core business also-- Forest Road business you alluded to. As I understand it, you guys look at tax credits for the film industry and then sort of lend against that. What's been happening with that business over the past year? We know that film production has slowed down, starting to open back up again. So what's the status?

ZACHARY TARICA: Well, what's great about our core business is that it's a win-win-win situation. The first thing as you look at tax credits is that they do three things. They create infrastructure growth, they create jobs, and they create tourism. So the state, the municipality is winning.

Us, our company as a lender, a servicer, and a broker, we're making money. And the underlying borrower, they are getting access to capital. And so one of the big things at Forest Road is to democratize access to capital for creators. And that's from distributed generators behind the meter for renewable energy, that's for real estate developers, and that's for television and film-makers as well.

JULIE HYMAN: All right, Zach, thanks for being here-- appreciate it. Hope we can check back in with you when you guys find another target. Zach Tarica is CEO of the Forest Road Company and COO at Forest Road Acquisition Corp. 2. Thanks so much for your time today-- appreciate it.--