CNBC’s Jim Cramer on Thursday gave a critical assessment of the supply of blank-check companies coming to market, likening the quality of the latest batch of SPAC offerings to weaker IPOs trading on stock exchanges.
As the craze for SPACs, special purpose acquisition companies, on Wall Street continues to play out, the “Mad Money” host turned cynical, saying the market has been “flooded with cash to the point of absurdity.”
“The SPAC cycle is starting to look like an IPO cycle. They give you the good merchandise early, like DraftKings … or the better EV plays, but then they start peddling junk,” he said.
Spaceflight company Virgin Galactic and Nikola, a controversial company with plans to make zero-emission vehicles, were some of the highest-profile SPAC offerings in the past two years. Through SPACs, private enterprises are taken public through publicly traded companies set up to merge with a target company.
Many electric vehicle companies have decided to come public via SPAC. Cramer, however, is now pumping the brakes, cautioning investors about what he called “celebrity SPAC plays.”
“So far, most of these stocks are holding up, they’ve been great, but in the end someone is going to be left holding the bag, and believe me, it won’t be the celebrity SPACKers, it’ll be you,” he said.
The new trend was fueled last summer by Billy Bean, the MLB’s Oakland Athletics minority owner who is behind RedBall Acquisition Corp, followed by former Goldman Sachs executive Gary Cohn’s involvement with Cohn Robbins Holdings Corp, Cramer noted.
Former NBA star Shaquille O’Neal, NHL Las Vegas Knights owner Bill Foley and NBA Sacramento Kings owner Vivek Ranadivé and former House Speaker Paul Ryan are also behind other blank-check companies, he highlighted among other prominent names and SPAC investors.
Cramer said more than 90 SPACs raised nearly $23 billion last month.
“These newer SPACs increasingly feel like an inside joke for the super-rich and a way for celebrities to monetize their reputations,” he said. “Believe me, you don’t want to invest in someone else’s inside joke, so please, please, please the way to prevent getting hurt [is] do homework on the people and if there are businesses before you go near these things.”