Why I’m Still Bullish on SPACs

Shah Gilani|March 17, 2022

This week, the song remains the same.

The stock market remains sloppy and weak, with each attempt at a rally being met with selling in response to worsening news out of Ukraine. That situation appears to have little to no chance of improving any time soon. In addition to the real human suffering in Eastern Europe, the disruptions to the supply chain for many critical commodities are adding to inflationary pressures around the world.

The weakness in equity markets is also reflected in SPAC trading, “blank check” companies, before and after they announce merger partners. A simple Google search yields results detailing a recent “bloodbath” and “de-SPAC carnage,” with the fate of the surviving few uncertain, and how other investors are leaving the SPAC and De-SPAC market in droves; and blah, blah, blah

But I’m not one to follow the crowd. Everyone on the run from the SPACs market these days is leaving behind ripening profit opportunities – one of which I’ll outline for you today.

My Best Advice on SPACs

After a stellar 2020 and 2021, SPACs have been struggling.

New SPAC registrations are being withdrawn at a steady pace. That’s because the easy money has been made and buyers are insisting on longer lock-ups and trust premiums to get IPOs completed. Meanwhile, “hot money” sponsors looking for big fat and easy profits are pulling away.

Against this seemingly dismal background, my best advice continues to be to buy SPACS at a discount to their trust value.

In a market like this, having an investment with unlimited upside potential with a worst-case scenario of a small profit makes an enormous amount of sense. That’s where SPACs come into play.

The opportunity for SPAC investors will improve over the rest of 2022, as “hot money” leaves the market and sponsors looking for a quick buck and celebrities using their fame to promote borderline scams are on their way out.

The wheat and chaff are separating themselves.

While the headlines surrounding the stock market and SPAC investing are dark, the truth is this: being a SPAC investor is one of the best things you can do with your money right now.

If you’re new to SPACs, I highly recommend reading my report on the subject and taking a look at my dedicated SPAC publication .

But for long-time readers, read on. I think you’ll like this “blank check” company.

The Importance of a Good Track Record

Whenever you consider investing in a SPAC, it’s important to consider any past deals before diving headfirst. Read over the major headlines about the sponsor. Read the S-1 filings. This research ensures that the SPAC sponsor won’t take the money and run.

In the case of Apollo Global Management (NYSE:APO), you’ll only find good things.

The company was founded back in 1990 by three survivors of the Michael Milken and Drexel Burnham implosion. Leon Black, Josh Harris, and Marc Rowan were once investment bankers who had worked with Michael Milken to build the firm into the junk bond powerhouse it became in the 1980s. They worked on some of the biggest leverage buyouts of all time and helped give birth to the private equity industry.

When Drexel collapsed in the late ’80s, the three bankers got together and opened Apollo. Due to the junk bonds collapsing when Drexel shut down and the Savings and Loan (S&L) crisis, there was almost no financing for leverage buyouts, so Apollo initially focused on distressed deals. They were buying distressed debt to gain control of companies and then restructuring them to reduce and eventually eliminate debt.

Since then, Apollo has become a leader in alternative investments, including private equity, real estate, and private credit. They have racked up enormous profits for their investors and now have $471 billion in assets under management. Since the company was founded, Apollo’s private equity funds have racked up gross returns of 39% annually.

Apollo and its executive team have a reputation to maintain – and they do, especially in the SPAC world. Here are a few examples of their work…

• Spartan Energy Acquisition Corp merged with electric vehicle company Fisker Inc. (NYSE:FSR), taking it public last August. Its stock tripled before pulling back.
• Sunlight Financial Holdings Inc. (NYSE:SUNL) popped by over 490% when its SPAC deal with Apollo was announced.
• Apollo Strategic Growth Capital (APSG) is expected to combine with travel giant American Express Global Business Travel, a company with 19,000 business customers and a 95% customer retention rate. The merger is expected to complete before June, with shares listed on the New York Stock Exchange. The resulting publicly traded company would be the world’s largest publicly traded “business-to-business” travel platform.

Apollo’s top public company investors are Expedia Group Inc. (EXPE), Ares Management Corp. (ARES), and Zoom Communications Inc. (ZM). Considering these big names, who as public companies are subject to intense scrutiny, the confidence in Apollo’s deal-making prowess becomes even more apparent.

Which is why I’m suggesting we get in on the ground floor with one of Apollo’s more recent SPACs.

Apollo Strategic Growth Capital II (NYSE:APGB)

Since Apollo Strategic Growth Capital II‘s S-1 filing in January of last year, has drawn significant institutional favor – 60% of its shares (over 54 million) are currently owned by institutions. To put that further into perspective, the company originally IPO’ed with 60 million shares at $10 each in February 2021. More shares have become available thanks to warrants in the time since, but you get the idea.

Its executive team, Sanjay Patel and James Crossen, also have strong resumes. Both worked on the previously mentioned SPACs sponsored by Apollo.

Outside of his duties to APGB as CEO, Patel is chairman international and senior partner of private equity for Apollo Global Management. He is charged with developing all of Apollo’s international businesses, which can be found in North and Latin America, Europe, Asia, Australia, and the Middle East. Until 2010, when Apollo brought on Patel as head of Europe he served Goldman Sachs & Co. as co-head of European and Indian Private Equity.

Before his tenure with Apollo, James Crossen served as controller of multiple firms including Roundtable Investment Partners LLC. Since, he has served Apollo as chief financial officer (CFO) for private equity and real assets, CFO of APSG, and CFO of Spartan II.

APGB is no SPAC fueled by dreams and celebrity. APBG is run by a grounded team of executives and supported by institutions. If you were to invest in this SPAC, you would be investing alongside leading dealmakers, wildly successful venture capital investors, and leading financiers with a worst-case scenario of a small profit (if you redeem your shares).

I’d consider buying in.

Cheers,

Shah