What to know about celebrity SPACs


As celebrities like Channing Tatum have jumped on the bandwagon of investing their millions into SPACs (special purpose acquisition companies), they’ve drawn both investor interest and the cautions of the SEC. SPACs made up a full 50% of new publicly traded companies in the United States in 2020. 

While SPACs have grown in popularity, that doesn’t necessarily mean retail investors should dip their hand into every SPAC as it goes public. A hasty timeline, limited regulation, and the general hiccups that can occur when SPACs—or blank-check firms—merge with recognizable brands could increase the risk of investing in a fraudulent or over-hyped company.

TL;DR

  • SPACs, or special purpose acquisition companies, are a popular alternative to a traditional IPO for taking a company public. 
  • Celebrities often invest in SPACs, which can cause increased interest from non-celebrity retail investors due to the person’s fame.
  • Professional athletes like Stephen Curry, actors like Channing Tatum, and political figures like Paul Ryan have invested in SPACs. 
  • The SEC issued a warning in March 2021 that no one should make investment decisions based on celebrity involvement in a SPAC. 
  • Thorough research into a company moving toward a SPAC merger is essential for making wise investments, as explained in the SEC’s celebrity SPAC warning. 

Recent celebrity-backed SPACs

A SPAC, or special-purpose acquisition company, is also called a blank-check company. It forms with investor funds before seeking a target company to acquire, which it must do within two years. 

One prominent SPAC in recent weeks that has secured the support of a celebrity is Bright Lights Acquisition Corp, which is moving toward a merger with Manscaped. The below-the-waist men’s grooming product startup counts actor Channing Tatum among its most recent investors. It’s expected to go public with an enterprise value of around $1 billion. 

Certainly, celebrities aren’t the only ones investing in SPACs. But just as the allure of fame can draw customers to buy retail products, it can also lead people to make sudden investment decisions. 

Other noteworthy celebrities who have backed SPACs include:

  • Shaquille O’Neal invested in the SPAC for Beachbody.
  • Peyton Manning, Andre Agassi, and Steffi Graf invested in a SPAC for Evolv Technology.
  • Jay-Z invested in The Parent Co.
  • Serena Williams invested in Jaws Spitfire Acquisition Corp.
  • Alex Rodriguez invested in Slam Corp. 
  • Stephen Curry invested in Dune Acquisition Corp.
  • Politician Paul Ryan invested in Executive Network Partnering Corp.

Pros of investing in celebrity SPACs

For the company itself, going public with a blank-check company merger is advantageous as it enables a quicker route to being publicly traded. A SPAC merger may take just four to six months, while a traditional IPO may run from 12 to 18 months to complete. The structure of a SPAC merger also allows companies to be more forward-thinking than an IPO and possibly go public much sooner. 

From the perspective of a retail investor, SPAC investing enables someone to get in on a company at only $10 per share, before potentially large growth. As for celeb-backed holding companies, being in the limelight can draw investor interest if the books are already top notch.

Cons of investing in celebrity SPACs

Special purpose acquisition companies can be attractive investments, but there are significant drawbacks. The speedy timeline and lack of regulation may be appealing to the companies themselves, but could spell risk for retail investors. 

One risk with SPAC investing (celebrity or otherwise) is the possibility of dilution, either by the exercise of warrants or by the PIPE investments that go towards funding a deal. 

Performance of SPACs has been lackluster, with recent Goldman Sachs research showing that SPACs tended to drop in performance after the first six months. Sometimes, the speed with which a company goes public via SPAC merger can mean a higher chance of buying stock that’s been overvalued. 

As Goldman noted in September, “SPAC returns have been weak, especially following deal closure.” The bank’s analysts noted that the median SPAC outperformed the Russell 3000 from IPO to deal announcement—but by six months after closing the merger, the median SPAC had underperformed by 42 percentage points.

Marc Cooper, CEO of investment bank PJ Solomon, backed up the Goldman Sachs’ findings and said that investors need to pay attention to “the performance of these companies once they de-SPAC.” 

The SEC’s warning about SPAC investments

Although the agency hasn’t warned against SPACs across the board, the SEC did publish an official cautionary statement in March 2021 about the heightened risks in SPAC investment based on celebrity endorsement. 

“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment,” stated the SEC’s Office of Investor Education and Advocacy.

The SEC issued its celebrity SPAC warning to help protect investors from falling into overly risky investments. Celebrities may have more capital available in order to handle the risk of loss. Besides that fact, retail investors need to remember that celebrities are as fallible as anyone else and could be drawn to a faulty investment.

What to do before investing in a SPAC

The SEC recommends following certain steps before investing in anything, including SPACs.

First of all, check into the background of those recommending a SPAC investment at investor.gov. You’ll also want to research the sponsors of the SPAC, learning about their experience and financial incentives for the project. Find out all the details you can about the SPAC and shareholder rights. 

In addition to researching the company and the SPAC, be sure to evaluate your own investment needs, the SEC recommends. Keep in mind your investment time horizon, risk tolerance, current net worth, and other pertinent factors when deciding on a SPAC or any other investment asset. 

Bottom line

Interest in SPACs may have cooled somewhat since the beginning of the year, but that doesn’t mean they’re inherently a risky investment or that people are shying away from them. While celebrity backing might catch investor interest, you shouldn’t buy shares solely on that endorsement. Always do your due diligence in SPAC investments and any kind of asset trading.

Rachel Curry is Pennsylvania-based content writer and journalist talking all things finance. She likes to give meaning to numbers by humanizing them. You can connect with her on Twitter at @writingsofrach.

The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.

Tweet