Cramer splits SPAC, urges investors to avoid blank check companies

By CNBC Jim Cramer on Thursday, viewers urged viewers to stay away from special-purpose acquisitions for now, suggesting there is too much of a risk for retail investors due to the structure of the deals.

“SPAC transactions continue to happen because they are a great way for institutional money managers to get a guaranteed return, but everyone else in the process will receive the closing.” short term end”, “Mad Money” said the presenter. “Sooner or later, private companies will figure this out and stop agreeing to participate, but until then, I’d recommend giving this group a broad berth or no berth at all.”

The pace of SPAC transactions accelerated this fall, following a multi-month slowdown that began in March after the Securities and Exchange Commission issue new accounting guidelines related to white-checking companies.

“We’re currently seeing about 20 SPAC fundraising per week. That’s crazy. Again, that’s because while buying SPAC stock after a deal is announced,” Cramer said. If the announcement is a terrible bet, participating in a SPAC IPO actually makes financial sense,” Cramer said.

“As long as you get there early, when the SPAC is still just a bunch of money, you’ve got a no-loss scenario because you can always decide to pull out at $10 whenever a deal is announced, ‘ says Cramer, describing a process known as acquisition.

Additionally, Cramer said money managers involved in an initial SPAC IPO often receive lucrative share warrants along with the actual number of shares.

“The problem is, most home-based gamers can’t make the most of these SPAC IPOs, and the companies that decide to merge with SPAC are also getting a rough deal,” Cramer said.

Instead, retail investors largely have to buy SPAC stock when they trade on the open market, Cramer said. Still, Cramer said that generally once the blank-check companies announced their merger goals, the stocks struggled. That’s why he advises retail investors to stay away.

“When you zoom out, it’s remarkable how badly some of the SPAC stocks after this trade have performed,” Cramer said, noting that CNBC Post SPAC Index, including 193 SPACs, fell sharply for the year.

“If the market reacts poorly to news of the merger, the original shareholders of SPAC could withdraw,” Cramer said. “But latecomers still experience carnage, and there’s a lot of it.”

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Emma James

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