Activist investor Bill Ackman (Trades, Portfolio) has been in the news a lot over the past few months. Most notably, he had a short position pay off 100 times over when the stock market crashed back in March.
His most recent venture has been the creation of a special purpose acquisition company (SPAC), or blank-check company, called Pershing Square Tontine Holdings (PSTH.U). In an interview with Yahoo Finance, Ackman talked about his plans for the investment vehicle.
What is it?
The basic idea of a SPAC is to create an investment vehicle, list it on an exchange, raise money from investors and then use that capital to acquire another company. Because of the lack of business operations and the wide-ranging powers that the management teams of these vehicles are typically granted, they are also sometimes referred to as "blank-check companies."
Ackman’s plan is to use this newly created entity to take a private company public. Ackman believes that there are a number of benefits to using a SPAC for this compared with the private company filing for an IPO itself. Under this model, the company being acquired won’t have to deal with the distraction of filing for the initial public offering. In essence, the SPAC acts as a middleman between the company and investors, taking away the work and media attention that IPOs tend to bring.
Although Ackman’s Pershing Square is using this exotic wrapper to take a company public, the type of business that it is looking for is essentially the same as any other company that he has invested in before:
“We try to find places where we can put a large amount of capital, own a meaningful percentage of the business. It has to be a super durable company. We don’t want a couple of people in a garage to come up with a better idea and disrupt us, we don’t want oil prices to go up or down and cause the business to be worth less. Our job is to find this super high quality company, that if the stock market were to close, we would still own a valuable company.”
Another aspect of the SPAC wrapper is that investors always have the right to sell their shares if they disagree with the management’s choice of acquisition target - that’s the benefit of having it trade on an exchange, where liquidity is freely available. Ackman believes that this can become a model for more companies to go public in the future. It will be very interesting to chart its progress.
Disclosure: The author owns no stocks mentioned.
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