If a medium sized business wants to go the next level, to be national in scope, part of the process with be to find more capital or more money. For a long time, part of the process included listing your shares on the stock exchange through an Initial Public Offering or IPO. At the moment, there is another vehicle called SPAC. In an article by Neal Boudette and Kate Kelly of the New York Times News Service, an example of how SPACs are being used to change the traditional method.
SPACs or Special Purpose Acquisition Company or similar to Venture Capital Funds except with a SPAC the issuer raises funds from investors with no set goal other than to deliver a return on investment or give the money back. If you invest in the SPAC you are essentially investing in the manager of the fund and hoping they do a great job. The time frame is the manager has the funds for 2 years.
One of the hottest stocks on the stock market is Tesla. If Tesla is hot, then maybe investing in other electric vehicle makers is also a very good idea. In the article, Lordstown Motors of Lordstown, Ohio is developing a electric pickup truck. The model is out and they need funds to bring it to production. If the truck works well, the company does have orders. The President of the company is Steve Burns. Mr. Burns has team up with a SPAC for $650 million in financing and a listing on the Nasdaq exchange, without the SPAC the listing on the exchange would have taken 1 and half years, with the SPAC the listing is happening in months. Mr. Burns is focusing on fleet sales of the commercial truck market and says orders have climbed from 15,000 to 27,000 since the announcement of the SPAC. If the company made and sold 27.000 vehicles it would have potentially $1.4 billion in sales. Does a company buy from Lordsdown Motors or the competition of Ford, GM- Chevy or Chrysler Ram trucks? Why would the big 3 not have electric vehicles?
SPAC transactions with the automobile business have so far raised over $10 billion according to Kristi Marvin who runs the data site SPACInsider.
Remember, the SPAC makes back its money when it sell some or part of the shares during the IPO, when the market is not hot, the valuations fall. Some companies will succeed, some will not. It is the nature of change in an industry.
Linking to dividend paying stocks, it maybe the Lordstown Motors is able to start production and produce vehicles which is a good thing. The issue will how many vehicles can and will it sell to be profitable, understanding the costs to build an electric vehicle is much less than an internal combustion engine vehicle. When you purchase a dividend paying company, you should have an idea of what the number is and how the company can do the sales volume on a consistent basis year over year. Once you know some simple benchmarks you can determine do you keep your shares or look for alternatives.
There are more questions than answers, till the next time – to raising questions.