Special purpose acquisition companies (SPACs) and blank check companies have been all the rage in the market this year. The most popular of these have manifested as sports betting companies, but there are so many more options.
For those late to the party, a SPAC or blank check company is one formed for the distinct purpose of acquiring another existing company. SPACs raise their money through an initial public offering (IPO) to effect this desired business combination, whether it be a merger or acquisition. In a sense, SPACs allow retail investors to invest in private equity type transactions, specifically, leveraged buyouts.
SPACs are an alternative way for companies to come public, and this may be particularly valuable for companies whose fundamental business is hard to evaluate in a financial sense. Also, this process takes out some of the hassle for small-cap and mid-cap level companies that want to come public.
These SPACs rely heavily on their management teams and their numerous years of experience to pick out the best acquisition target companies. There are usually big names involved with these companies. In some cases, many are investing in these figureheads more so than the actual company, as acquisition targets may be ill-defined.
Again, this year has been especially profitable for SPACs, but this is nothing the market hasn’t seen before. For comparison, 2019 was a record year for SPAC activity in a couple ways. The IPO count and gross proceeds from these IPOs hit record numbers last year (59 IPOs, raising $13.6 billion in gross proceeds). It’s likely that 2020 will be another record year for SPACs in particular, all things considered. Some suggest that there is a real potential for SPAC IPOs to reach or surpass 100 by the end of the year.
Here 24/7 Wall St. has put together a list of SPAC stocks and blank check stocks that could win big this year, and these aren’t just the ones involved in sports betting.
Landcadia Holdings II Inc. (NASDAQ: LCA) came public back in April, but it really made a splash at the end of June when it announced that it would be acquiring Golden Nugget Online Gaming. This SPAC is headed up by billionaire investor and restaurateur Tilman Fertitta. Much of the excitement around this move is in regards to putting more gambling online.
According to the Golden Nugget deal, the transaction values the combined company at an anticipated pro forma enterprise value of approximately $745 million, or 6.1 times Golden Nugget Online Gaming’s estimated 2021 revenue of $122 million.
Note that Golden Nugget Online Gaming is a U.S. online real money casino owned by Fertitta. After this deal, it will become only the second pure publicly traded online casino company in the United States.
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