Anthony Speciale Stock Market Analyst

Better Way to

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The Truth About SPACs

Speaker 1 (00:01):

Hi, this is Carter clues. Welcome to Tim. Melvin’s a better way to wealth. And today we’re going to talk about a subject. There’s a lot of misinformation on until Melvin is going to straighten a spout up and down. Tim, can we talk about specs?

Speaker 2 (00:16):

Oh yeah. One of my favorite topics, special purpose acquisition companies. We’ve seen all the hype and hoopla. It’s been everywhere for the last year. Now. Special purpose acquisition companies. They’re not new. They’ve really been around in the current form since I’m going to say the 1990s, but every few years they come around, especially when interest rates are low. And there’s just lots of capital looking for a home. This is essentially a blank check company. A spec IPO is going to raise a ton of money. Carter. I, you know, we’ve seen them as high as a billion dollars and they hand the money to the manager and they say, you have two years to go find a company to buy with this money.

Speaker 1 (01:01):

Let me make sure what you’re saying here. I, as an investor and my money blindly to somebody who is an expert, right? And say you have two years to decide where to invest my money. Am I right?

Speaker 2 (01:13):

Absolutely correct. Yes. And the IPS are $10 a share and you usually get warrants or fractional warrants along with your shares for these units. That’s kind of a deal sweetener, but warrants are like long-term options and that’ll be to buy more stock at a usually $11 and 50 cents anytime over the next five years, no matter what the price does. So if the price goes to 20, your warrants go from, you know, way up and you make 10 times your money and pretty cool. And people are referring to these as pre IPO, and it’s an opportunity to buy in to all these hot new companies at insider prices.

Speaker 1 (01:53):

And no,

Speaker 2 (01:55):

That’s just a pile of hot garbage. I mean, it’s, it’s not even close to how specs really work now. I absolutely love specs, but I’m also aware of something really important that most people aren’t telling you, because I’ve seen this in so many places and special reports and spec trading services and spec IPO’s.

Speaker 1 (02:19):

And you know, I think they

Speaker 2 (02:21):

Had a spec special edition on one of the leading TV networks and everybody’s all hyped up about specs and this whole market exists for a couple of reasons. Okay. And only a couple of reasons. The biggest reason is that the people that participate and sponsor these specs, okay. They make four to five times their money. The minute the deal closes. In other words, Carter, once they find a target and they buy that target and that deal closes, they’ve got, founder’s shares that they paid on a dollar for. Okay. So they don’t really care what they bought or what they paid. And that’s important to keep that in mind cause that’s going to come up again. And then the other reason, and the reason that you’re able to see so many of these deals, because they’re just constantly being done over 200 last year, over 300 this year.

Speaker 2 (03:18):

Well who’s buying them. It’s not traditional money management firms. It’s what we call arbitrary shops. Arbitrage is just a, you’re making money on statistical differences. Just the parts it’s. I love spec art. I paid my bills in 2007 using spec arbitrage. You know, I learned a technique from an old you know, reasonably well known value fund manager who was crying. And he explained to me how these work I’m like, Hey, I can do that and make money. And you know, my kids can go to college and the bartender’s kids so they can stay in college. So this is, this is great. We’re going to go ahead and do this because the stock market was so elevated. I couldn’t really find anything to do. So we did this and here’s how this here’s how this works. You’re going to buy the IPO. Okay. And you’re immediately going to sell whatever warrants or fractional warrants that you get to lower your cost basis in the SPAC.

Speaker 2 (04:15):

All right. Now, back when we were doing it, you got two warrants with everyone. So you could really, you could whack 80 or 90 cents off giving yourself pretty big spread between the $10 IPO and what your cost basis was after you sold the warrants. Okay. Right. Then it’s real simple. You hold this thing. When a deal is announced, one of two things is going to happen. The market’s going to love the deal. Investors are going to pile in and it’s going to go up right. When it goes, when it goes up, sell, okay, take your profit right there. You know, if you want to be fancy, put a trailing stop in and ride and higher. But most of the time, if it goes from, you know, 10 to 12, $13, sell it. Right. Okay. Move on. We’re not emotionally attached to anything here. Yeah. If the market doesn’t like the deal, it’s going to go below 10 bucks.

Speaker 1 (05:11):

What happens to my investment at that point?

Speaker 2 (05:13):

All specs have what’s called a redemption privilege. Okay. There’s going to be a shareholder vote two or three days before that vote, that date will be fixed and you’ll be informed. You can redeem your shares and get your $10.

Speaker 1 (05:27):

So I can’t lose Katelyn. Can’t lose.

Speaker 2 (05:29):

They can’t can’t match it unless there’s massive fraud involved. You really, you can’t lose as long as everything’s on the up and up because the market doesn’t like the deal, you can simply reduce your shares.

Speaker 1 (05:41):

Sounds great to me as a layman, that sounds like a great investment.

Speaker 2 (05:46):

It’s a fantastic strategy. And I still use it and try to teach it to people today. The problem with it is, is we’re humans. We get caught up in the story, right? This is a great opportunity. It’s to make you a good jillion dollars. They’re going to make an electric car that is also the world’s fastest supercomputer. And nevermind that these guys thought about a dollar of revenue that they’re going to sell you on that. And you’re going to try to play it and believe in it. And you know, when it goes down, you’ll double down. Cause this is the buying opportunity of a lifetime. It’s not it’s you the way we’ve done this. As we look for sponsors that we know have a good chance of getting a great deal done. KKR has done specs. KKR knows more about deal-making than anybody on the planet.

Speaker 2 (06:29):

So we like to, we like to invest in their deals. Same with Apollo global, same with Sam Zell and his back Sam Zell is one of the best real estate and even corporate investors on the planet. So you’re going to spec, I’m willing to put my money in with him. There’s an aftermarket aspect to this because it’s really hard today for an individual like your eye to buy in to spec IPO’s okay. The institutions because of the arbitrage opportunity, right? This is a straight up almost risk-free way to earn a double digit rate of return in a, you know, almost 0% interest rate world. They’re flocking into these things they want in. And it’s all the arbitrary shops, all the private equity firms and all the smart, old time value guys are doing this, this trend, right? So if your patient, these things are all going to trade at a discount, okay, they’re going to come down and there’s $10 sitting there, but there’s a time value to money. So the market’s gonna adjust. So that’s 2, 9 59, 69, 70 per share. So you could buy these at a discount to create again, that small arbitrage profit. That’s the worst thing that can happen to you.

Speaker 1 (07:39):

Now, Tim, let me ask a question. Are you saying that I can buy in for under $10, but I’m guaranteed to get out with $10. Yes.

Speaker 2 (07:49):

Yes. You are. The sponsor sponsors obligated by perspectives to pay you to if you choose to redeem. So

Speaker 1 (07:55):

It sounds like a pretty good deal. It’s

Speaker 2 (07:57):

A fantastic deal because here’s the worst case that can happen to you now is that you make, make three to 3% on this deal over time. The best thing is you get a 20, 30 or 40% pop in your shares or even a 10% profit in your shares. So the institutions are really, they’re going to make it hard for you to get into that IPO market where you can strip away and sell the warrants to create a discount. So you gotta be patient look for the specs, with the experienced sponsors, where there’s a decent chance of getting that pop in the spec price. That’s the way that you should trade specs. Nobody will do it that way because they want to think about pre IPO and million to one shots. And we’re programmed to get really excited. Right? I hear about a chance for 1,000,001. My blood pressure starts running. You know, it’s, it’s like finding a horse with a high

Speaker 1 (08:44):

Buyer rating. I have to track, you

Speaker 2 (08:46):

Know, at 25 1, I I’m betting on that horse. I’m just going to say, you

Speaker 1 (08:50):

Know, I can’t lose. I can’t learn. Yeah. So,

Speaker 2 (08:54):

But the more, you know, kind of plotting along arbitrage approach to trading specs works a lot better. Now this also creates an enormous opportunity for us as longer-term thinking investors.

Speaker 1 (09:10):

Yeah. So we get a weird, are we getting into Tim? Melvin’s better way to wealth. At this point,

Speaker 2 (09:16):

You have been away part one with this back arbitrage, and now we’re going to get into, you know, where’s the real opportunity. It

Speaker 1 (09:23):

Was his fault, which I’ve already made money on. It can’t lose. That’s pretty

Speaker 2 (09:25):

Good way. Right? So we’re out. Cause we either sold or redeemed. We’re not in the special, we don’t, we don’t care what happens to those companies. What happens is the sponsors. They want to do a deal. Okay. And they don’t need that deal to go up because they’re getting four to five times what they put in the minute the deal closes. Okay. So they just need it not to go to zero. So they tend to overpay for these companies. All right. And wall street in the long run is a weighing machine. So you know these companies, well, I’ll just give you the math a year after the deal. 65% of all, SPACs from 2010 to 2018 lost money. The average loss is a rather staggering 65%. So these things tend to go down because the sponsors overpaid and the stocks really become orphans because, you know, Carter, have you ever bought a traditional IPO or you’re at least familiar with them,

Speaker 1 (10:20):

I’m familiar with it. Yeah. And then I never bought one because I didn’t know you before

Speaker 2 (10:26):

We do an initial public offering of your company through Goldman Sachs or JP Morgan or Merrill Lynch or wherever your underwriter is, they make a commitment to you to provide research and trading services for your company. So their analysts and every analyst in the selling group is going to be writing positive reports about this stock in the aftermarket to keep buyer interest up, to keep the institutions interested in the stock to make sure trading was smooth. And if the stock stayed liquid, they make that commitment to you. As part of the IPO process, there is no commitment to anybody in the spec process. It’s the deal is closed. I’ve got to hold my shares for so long. What’s so long as you’re I’m out. Good luck. You’re on your own kid. Have a good life. And you know, the, the founders of these companies, it’s an okay deal for them because they got overpaid for their company. Now they’ve got stock at a chance to resurrect it. So

Speaker 1 (11:24):

I stayed in Tim. Let me make sure I understand. You advise me to get out early. Once I’m in and I can make 11, 12, 13, $14 on my stock. Get up. If I stay in there’s a 65% chance I’m going to lose. Am I misunderstanding that? No, it’s yeah. It’s

Speaker 2 (11:41):

Way above average chance that you’re going to lose 65%. Okay. All right. Yeah. so you’ve got all these orphans sitting out there and it’s look, there’s now no buyers, right? Because there’s no, no institutional interest. Nobody’s drumming up support for the stock, but you do have sellers because you’ve got the sponsors and other people that put money in the deal before the SPAC IPO, soon as their time limbs up there. Okay. Okay. You’ve so you’ve got natural sellers in the deal with no buyers. So that’s going to tend to push this thing down. Now let’s be fair. Some of these companies are garbage. Okay. They never should have dispatched sponsors. Shouldn’t even done this deal. They’ve got no profits. They’ve got no hope for profits. They don’t even have a solid plan. Those stocks are going to go to jail. Most of them.

Speaker 2 (12:32):

Okay. However, there’s a lot of great companies in there. All right. And we’re finding this, just dealing with the 2017 and 2018 specs. And we saw it to them much smaller degree after the the market meltdown in 2008, 2009, because there weren’t as many, but Carter, let me check my numbers here. We did 248 tack deals. Last year, we’ve already done 350 deals this year, and it’s not even the 4th of July yet. So there’s going to be, does it of these orphan stocks around there are actually really good businesses run by good people that you know, are run great companies. And now they’ve done this back IPO. They got paid, but management still there, it’s still a great business. And the stock is trading at a bargain price relative to what the company is. Wall street being wall street. If you perform for a few quarters in a row, somebody somewhere is going to take notice. And you know, some of the smarter institutions are going to start buying this stock. And you know, the big institutions will see it showing up in the brokerage firms on their client’s sheets. And they’ll look at that and say, Hey, that’s pretty interesting. We should look into that. And maybe slowly it slowly but surely the buying interest is going to come back into this. Yeah. Okay. That gives us just a massive opportunity to take the tools that I use already to pick stocks that I’ve developed over the last 30 years to find great companies.

Speaker 1 (14:04):

Now, are you going to that? Are you going to let us know which ones these are?

Speaker 2 (14:08):

Carter, I’m gonna give you three of them today.

Speaker 1 (14:10):

Fantastic. Okay. Right. Folks, get your pencil, your pencil. We’re going to give you three

Speaker 2 (14:16):

Of them today. And I remember we’re early in this, okay? Because they’re 2020 specs. They’re not to they’re two, 10,000 to their two year time limit until next year, the ones done this year. 350 of them were not that we’ve got a long way to go before we get to, to the point where they have to have, have a deal done. We’re going to see a lot of inventory created and I’m going to be watching them as they come across. And you continually looking for these, but here’s three for free to get started. So you can realize just how powerful this strategy of looking for these SPAC. Orphans can be okay. Ready? Carter. I’m ready. Okay. Now this one you may actually, you may be moderately familiar with this one, cause I know you do a lot of stuff down in there with a Caribbean real estate.

Speaker 2 (15:03):

Yep. Play a resorts. It’s just 22 hotels. They’re all inclusive hotels. You know, that’s the kind where you check in and that’s it. That’s the last dollar you spend because everything else in there is included in the price. Okay, they’re working. They’ve got sponsorships for Panama Jackson, some other folks, but their most important sponsors are Hyatt and Hilton. They’re working with Hyatt and Hilton to develop their all-inclusive portfolios all across the Caribbean and Mexico. They’re at 22 hotels. There’s going to be more as time goes by what this gives play. It is access to a combined loyalty file of 135 million people who have stayed in Hilton and Hyatt hotels. They can now market these all-inclusive hotels to Hilton and Hyatt’s customer list. So how did they do during COVID-19? Oh, about that? Like you would think not very well, the Caribbean resorts, you can’t fly, you can’t stay in the hotel. So, you know, you really didn’t do that. All that. Well, however, look, it looks like the pandemic is now in the rear view mirror, they had wonderful spring break bookings that are now leading into strong, suburban bookings and looking out, we’re seeing bookings increase for the fall and for the holidays, everybody wants to get back out and travel. And I live in Florida. So I’m a bag. All of you go to the Caribbean.

Speaker 1 (16:48):

I just, I just want a home on the beach, in the Caribbean, right.

Speaker 2 (16:52):

He wants to be down there. So we’ve got this great collection of hotels. This was a 2018 spec deal. These guys are sitting on $200 million of cash. And as cash comes in the door, even in the limited amounts during COVID, they’ve been using it to pay down debt. I love companies paying down debt. Yeah. Every dollar that you pay down with debt increases the value of that company. So this is a great story, a huge runway for growth in front of them. And then I looked the other day, some of the smartest people in the investment industry, private equity guys, special situation, guys, they’re starting to buy the stock. So the stock sitting here trading you know, well, under 10 bucks a share, you know, you probably got the potential over the next several years. As the economy comes roaring back and gets fully open, they can continue to develop properties and help Hilton and Hyatt build out this network of all-inclusive hotels. You could be looking at two, three, and even four times your money from this back. Orphan stock, ticker symbol,

Speaker 3 (18:01):

P L Y a.

Speaker 1 (18:03):

Yeah. Why a Playa? That’s Spanish for beach. There you go. I did not. I

Speaker 2 (18:10):

Know Spanish for beer and that’s it. I know I got to learn Spanish for bourbon before I could go to

Speaker 1 (18:16):

Actually could ask based on the Playa. There we go. All right.

Speaker 2 (18:20):

The next one is a comprehensive, excellent. This love this little company, concrete pump holdings. The simple here is B PCP, BBC P hold on. I’m going to confirm that because my handwriting is chicken scratch.

Speaker 1 (18:33):

All right. That’s good stuff. That’s good stuff. All right.

Speaker 2 (18:38):

Anyway, con concrete pump holdings came publicly us back again in 2018, they are the largest concrete pumper in both. Bear with me one day sprint. You may have to do a cut here.

Speaker 1 (18:51):

All right. It’s worth waiting for. Okay.

Speaker 2 (18:56):

I don’t know for concrete pump holdings is BBC P there’s a leading provider of concrete pumping services which I really never thought much about before I started looking into this company. But they’re the largest provider of this in both the United States and the United Kingdom. They’ve got about a 13% market share here in what’s a very fragmented market. Okay. There’s just a lot of mom and pop people in the concrete pumping business. They’re kind of the only large national company doing this. It’s a fantastic business. You don’t own the concrete at any point, you zero commodity risk. Okay? You don’t own the building. You own nothing. They have pumps several hundred pumps. They use it to move the concrete from the truck to wherever it needs to be. So they’ve got like boom pumps that can move it across the entire construction site so they can move it quite a ways and they can move it higher, lower wherever you need this stuff to get paid by the day. And they come in, they pump the concrete, however many days they’re there, they’re there. They get paid. They leave, okay. This is just a fantastic business. They’ve been in business for 23 years and just slowly grown by acquisition. They hear of a guide that they know that’s also in the business. You know, that wants to retire is moving on. These kids don’t want it and they buy it. So you’re just kind of slowly you’re growing the business via acquisition makes a lot of sense. It’s a fantastic business that produces a lot.

Speaker 1 (20:31):

Okay. Let’s try and get into the low price on it. And this another one was going to go up maybe three or four times.

Speaker 2 (20:36):

Yeah, I think so. Cause there’s massive tailwinds. Okay. Now there’s going to be an infrastructure bill here in the United States. It’s going to be far messier to pass than ever originally thought, but it’s going to get done and it’s not going to get done for purely political reasons. The fact of the matter is it needs to be done. We’ve got roads, bridges, highways, airports, they’re, you know, not in great shape. You ever want to feel like you’re in a third world. Drive from Jacksonville, Florida, new Orleans, the roads are horrible. So a lot of this has to be done politics aside, it’s going to be done, you know, for job creation purposes, it’ll get done sometime this year or next that money will start to spend. And you know what? They’re going to use a lot of concrete and it’s going to have to get pumped from place one to place two.

Speaker 2 (21:25):

So then in the United Kingdom, let’s not forget them. They’re building a whole new high speed rail network. That’s going to use a massive amount of concrete. Remember concrete pump holdings has a 34% market share in the United Kingdom. That’s going to be fantastic for them. The other great opportunity. Yeah, I think this would be fantastic. The other opportunity that I see for this company is renewable energy facilities, solar farms, wind farms you know, the relay stations, again, massive amounts of concrete. And you’re talking about starting almost from zero to completely redo the electrical grid. And they’re going to use massive amount of concretes. And it’s all going to have to be pumped from the truck to wherever it needs to be. And that’s going to be a solid business opportunity for concrete bop holdings. I think again, 2, 3, 4 times your money over the next three to five years is not an unreasonable expectation. The stock has been ignored since the deal was consummated in 2018. And it’s going to come back. It’s starting to get some attention moving up. I think it’s gonna move a lot higher over time. Once it gets some institutional sponsorship.

Speaker 1 (22:39):

That’s fantastic. I am. So we have two now, two of the Tim, Melvin’s better way to wealth, Playa resorts and concrete pumping holdings. Excellent. One more. You promise one more, one

Speaker 2 (22:52):

More. This one could actually, this could be the best performer of all of them. I absolutely love this company. PAE incorporated. The symbol it’s PA pH stands for Pacific and Atlantic architects. Art, no Pacific architects and engineers. I’m sorry. I got that wrong shame on me. They were they were formed in 1955. Okay. Right. And their mission was to work with the United States government to rebuild Europe in the aftermath of world war II. Now you can imagine exactly what was involved in all of that. Right? They have maintained a relationship with the United States government, particularly the military, the state department and Homeland security ever since these guys were active in Korea. They built the majority of the forward basis in Vietnam. Right. These, I mean, guys have been around a long time.

Speaker 1 (23:48):

Okay. They’ve been bought up in a spec, right.

Speaker 2 (23:52):

Came out in a spec that deal just closed in 2020. All right. So remember it’s by existing businesses, not new businesses. Okay. So today they’ve got divisions. They first off, if you know, we’re go to space, right? And we’re going to use these space facilities. There’s four major ones, five major ones. They manage four of them in the United States, do all facilities management, upgrade that type of thing. They do logistics and food services for institutions all over the world for the state department and the military. When there’s a secure facility that needs to be built somewhere in the world, they’re the ones helping build it, providing security for that site. They’re also providing logistics to after it’s done. They also work with Homeland security and other intelligence agencies to develop and, and game out, counter terrorism and counter counter-insurgency you know, strategies and attacks. So, you know, dealing with, with China and Russia, what their plans are and how we can counter those. So they’re also involved in the strategy ends of things as well as well.

Speaker 1 (25:00):

Tim, I got to, I know I’m not the only one watching right now, listening to you, sitting at your feet, so to speak, who doesn’t have the question with a company that’s already this successful? Why were they a target for a SPAC is essentially a buyout or a takeover. Isn’t it?

Speaker 2 (25:20):

It’s a buyout. It brings it public. Okay. It takes it from a private business to a public.

Speaker 1 (25:25):

Okay. Okay. All right. Now I understand that

Speaker 2 (25:27):

You have to sell your, you know, you don’t have to, you’re not getting rid of your company, but you’re just coming public. And if it’s structured correctly, you get pay. Okay. So yeah.

Speaker 1 (25:37):

And so this

Speaker 2 (25:39):

Company has just been there. They’re, they’re working with various branches of the government. They’ve got operations on all seven continents, 60 nations around the world. If it has to do with defense intelligence, the state department they’re involved, particularly on the facilities management side, but they’ve been building relationships inside the United States government since 1955. So for 65 years, they’d been the go-to contractor for a lot of these companies, these agencies, and they’re going to be first call or first consideration on future projects.

Speaker 1 (26:16):

That’s an incredible trick. It’s an incredible play.

Speaker 2 (26:19):

Look, you’ve got first off defense is unfortunately a growth industry and it will always be a growth industry. That’s just a fact of life. So is the gathering and processing of intelligence of being electronically or through human methods. They’re involved with all of that. And then when we’ve got personnel overseas, we’ve got to feed them and clothe them and ammunition and paper and everything that they need while PA’s doing all of that. So everything to do with military and intelligence strategies, this company is involved at some level in just about all of it. So these are high growth industries and you have something that is prized above all else. When it comes to business, you have a customer who always pays his bills. Okay. You’ve got that printing press. You can just crank

Speaker 1 (27:15):

It up and go. So that’s one part of your money to pay them your money.

Speaker 2 (27:21):

We can still buy it below $10. I think that you just take this stock, you buy it, you put it away. It’s not paying a dividend. I expect somewhere down the road, the cash will get to the point that we’ll see dividends, but this could just be a monster long-term life-changing stock that currently has orphan status trading at just a fraction of where the stock should be trading. I mean, I think it’s trading it. If memory serves six and a half times free cash flow, this business should be at 50 to 20 times free cash flow right now. So that’s, that’s my favorite. I love all three. I would buy all three and but PA you know, we love all our children, but I love that one better.

Speaker 1 (28:03):

And on that note, I’m afraid we’re out of time, but this has been if I can, if I may say spectacular. Jeez, thank you very much.

Speaker 2 (28:13):

And we’ll talk again tomorrow, Carter. Thank you very much. Thank you.