Even as the broader stock market hit a record in the first half of 2021, with the S&P 500 index gaining 15 percent, short sellers found what has seemed to be a surefire place to make money: special-purpose acquisition companies.
Since SPACs began to soar last year, activist short sellers have set their sights on 22 of them. The vast majority of those — 16 — were the subject of short reports this year, according to Breakout Point, a Germany-based research firm and data provider.
The short sellers have an impressive record: One week after they unveiled their SPAC targets, the stocks fell 14.2 percent on average, Breakout Point said. And they kept falling. After one month, they were down 24.7 percent on average.
Moreover, “SPACs are better performing” than other short targets over the past year and a half, Breakout Point’s Ivan Cosovic told Institutional Investor.
Since 2020, the stocks of SPAC shorts have declined 17.5 percent on average year to date, while the average decline of all new activist shorts was 13.5 percent.
Looking at SPAC shorts this year alone, Cosovic said they fell on average 23 percent the month after being announced, compared with a decline of 10.8 percent during the same time frame for all 79 activist short calls this year.
To be sure, the boom in SPACs, which peaked earlier this year, has given short sellers a lot to look at.
Even though 358 SPACs went public during the first half of the year, on top of 248 for all of last year, according to SPAC Insider, those susceptible to the short sellers’ critiques are a much smaller universe.
That’s because activist short sellers wait until the SPAC sponsor announces a deal before they can analyze its merits. This year 35 deals were announced, following 95 in 2020. A little more than one half of those — 55 — have been finalized.
Those that have announced an acquisition are up 14.5 percent on average, according to SAC Insider. But there is a wide variation, with one SPAC — Churchill Capital Corp. IV, which plans to merge with Lucid Motors — up about 200 percent, the highest of any of them.
The best SPAC short, on the other hand, was Quintessential Capital Management’s bet against Akazoo, the first SPAC activist short since the beginning of 2020. Akazoo, a music streaming service, was delisted earlier last year, and the SEC filed fraud charges against it in September.
Bonitas Research’s short of Hyliion Holdings, an electric truck technology company, came in second for the shorts, with a 58.6 percent decline in the stock price since Bonitas pitched it on October 16, according to Breakout Point’s analysis, which looked at prices through the end of June.
Third-ranked is Hindenburg Research’s short of Nikola, an electric truck company, unveiled September 10. The report captured attention because Hindenburg had obtained a Nikola video of one of its trucks rolling down a hill, instead of operating on its own power, as the company asserted. The stock fell 57 percent between the report’s release and the end of June.
Hindenburg has penned the most SPAC research reports, publishing five so far. Its latest short, of SPAC star DraftKings, has so far been a loser. The stock of that SPAC is up more than 3 percent since the report.
Another big winner was Luminar Technologies, which fell about 52 percent from the time Andrew Left’s Citron Research wrote about it until Citron closed out the short. (Left is no longer writing short reports.) It also had the third-best first week performance, when it fell 32 percent.
For this year’s SPAC shorts, the best performer so far has been Muddy Waters’ short of XL Fleet, another electric vehicle company. As of June 30, it is down 47 percent since the short report was revealed on March 3.
Among the worst of the lot was Kerrisdale Capital’s short of Virgin Galactic, the pioneer of the recent SPAC boom. Virgin Galactic was the first SPAC by venture capitalist Chamath Palihapitiya, who later became known as the SPAC king for the many blank-check companies he has sponsored.
As of June 30, Virgin Galactic was up 44 percent since Kerrisdale released its report on June 4. It was one of six SPACs that were showing gains since the date of their short reports.