The SPAC Short Boom Is on Its Way

At least six SPACs have been targeted by short sellers this year.

Illustration by II

Illustration by II

The great boom of special purpose acquisition companies in 2020 is creating another one in its wake: a boom in SPAC shorts.

So far this year at least six companies that went public by merging with a shell company, known as a SPAC, have been targeted by short sellers.

And short sellers, who are using SPACs as a screen to look for ideas, say more are on the way.

“We have a few SPAC ideas we’re kicking around; lots of dogshit there,” said Muddy Waters’s Carson Block, who in November came out with a short against MultiPlan. In a research report that month, Carson said MultiPlan was losing its biggest client at the same time the “juice” had been taken out of it by its private equity owners. (The private equity owner, Hellman & Friedman, said it was committed to the company and remains its biggest shareholder.)

At $11 billion, MultiPlan was then the biggest-ever SPAC merger, done with top SPAC founder Michael Klein’s Churchill Capital Corp. III.

SPACs are shell companies that use the cash raised in their initial public offerings to buy a privately held company and take it public. As Institutional Investor has previously reported, the incentives in the SPAC structure — which typically include free shares for their founders — can lead to bad deals. Overall, the stock-market performance of SPACs post-merger has been abysmal, with only 29 percent in positive territory since 2015, according to Renaissance Capital.


[II Deep Dive: Egregious Founder Shares. Free Money for Hedge Funds. A Cluster***k of Competing Interests. Welcome to the Great 2020 SPAC Boom.]

“A business model that incentivizes promoters to do something – anything – with other people’s money is bound to lead to significant value destruction on occasion,” Block noted in his report on MultiPlan.

Two other well-known SPAC shorts this year include Hindenburg Research’s September short on electric-truck maker Nikola, and Quintessential Capital Management’s April takedown of Akazoo, the music-streaming service. Nikola is under investigation by the Securities and Exchange Commission and the Department of Justice. Akazoo was delisted earlier this year, and the SEC filed fraud charges against it in September.

The most recent SPAC short is Triterras Fintech, a blockchain-enabled fintech company that The Bear Cave’s Edwin Dorsey wrote about in his December 17 newsletter. Dorsey, who doesn’t short stocks himself, says the SPAC sponsor, Richard Mauer, the chief executive officer of SPAC Netfin Acquisition Corp., which bought Triterras, had a pre-existing relationship with Rhodium Resources, a related-party commodity trading firm controlled by Triterras CEO Srinivas Koneru. Triterras has said it is reliant on Rhodium, which Triterras reported December 17 was in the process of restructuring its debts.

“How likely is it that Triterras’s CEO and the SPAC sponsors didn’t know that Rhodium was financially unstable when Triterras despaced a month ago?” asks Gavin Richey, partner at Railroad Ranch Capital, who is short the stock. (A company “despacs” when it merges with the SPAC, then goes by the company’s name.)

“Is it wrong to say that absent the SPAC process and U.S. appetite for ‘blockchain stocks,’ [Triterras] would be in bankruptcy? If so, job well done by the bankers and [SPAC] sponsors!!” Richey wrote the company’s bankers in an email, on which II was subsequently copied.

Triterras did not return a call for comment.

The attacks on “despaced” companies have heated up in recent weeks.

For example, Andrew Left’s Citron Research tweeted about Luminar Technologies on December 8, saying it is “not even a casino stock. You can actually win at a casino. It is more of a ‘sucker’s game.’” A week later, after the stock had fallen substantially, he tweeted again, saying there is “a long way down still in this SPAC mania.”

Before that, on November 19, Kerrisdale Capital Management took on Tattooed Chef, a $1.2 billion packaged food company that also went public via a SPAC.

“Going public through a SPAC acquisition has allowed Tattooed Chef to avoid the kind of scrutiny that might reveal customer concentration risk far more serious than suggested by the company’s disclosures. It’s also allowed for a pandemic-driven paroxysm of consumer frozen food purchases at one retailer to be portrayed as sustainable sales momentum,” Kerrisdale’s report claimed. The merger was completed in October.

Neither Luminar nor Tattooed Chef responded to a request for comment.

Though they may be picking up speed, SPAC shorts have paled in comparison to the number of SPAC deals out there. So far this year, 255 SPACs have completed acquisitions, according to SPAC Analytics data on Friday. Another 222 are looking for a merger partner.