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Kramer tears apart SPAC and urges investors to avoid companies with blank checks

CNBC’s Jim Kramer on Thursday pleaded with viewers to stay away from special-purpose acquisition companies right now, suggesting that there is too much risk for retail investors due to the structure of the deals.

“SPAC deals keep coming in because they are a great way for institutional finance managers to get guaranteed returns, but everyone else in the process gets less benefit,” said the Mad Money presenter. “Sooner or later private companies will understand this and stop agreeing to participate, but until then I recommend that you leave this group away or not at all.”

The pace of SPAC deals accelerated this fall after a months-long downturn that began in March after the Securities and Exchange Commission released a new accounting manual involving letterhead firms.

“We are currently seeing approximately 20 SPAC fundraisers per week. This is madness. Again, this is because while buying SPAC shares after the deal is announced is a terrible bet, participating in the SPAC IPO does make financial sense, ”Kramer said.

“As long as you come early, when SPAC is still just a pile of money, you have a win-win scenario because you can always decide to cash out $ 10 every time a deal is announced,” Kramer said, describing the process. known as the atonement.

In addition, Kramer said that wealth managers involved in an initial SPAC IPO usually receive lucrative share warrants alongside real shares.

“The problem is that most home gamers can’t take full advantage of these SPAC IPOs, and companies that decide to merge with SPAC also get a rough deal,” Kramer said.

Instead, according to Kramer, retail investors generally have to buy SPAC shares because they are traded on the open market. However, Kramer said that, as a rule, after firms with blank checks announce their merger target, stocks fall. This is why he advises retail investors to stay away.

“When you zoom out, it’s amazing how badly some of these SPAC shares did after the deal,” Kramer said, noting that the CNBC Post SPAC Index, which consists of 193 SPACs, has dropped sharply over the year.

“If the market does not respond well to the news of the merger, the early SPAC shareholders may simply step back,” Kramer said. “But the investors who come in later are still going through the carnage, and there is a lot of it.”

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