Last week, Bill Ackman made history by IPO’ing the largest special purpose acquisition corporation (SPAC) to date, raising $4B to acquire a venture-backed unicorn to take public. Pershing Square Tontine Holdings (NYSE: PSTH/U) is positioned for success given its size, sponsor and structure. It will trade at $20 per unit, which includes one share of common stock and 1/9th of a warrant (with potential for an additional 2/9th warrant post-business combination). Here’s what you need to know since $PSTH went public on Wednesday (7/22/2020). If you want some background on SPACs before diving in, check out our SPACs 101 article.

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SPACs have had tremendous returns on investment (ROI) before and after identifying a target company to bring public, averaging at 9.2% and 41.4% respectively. According to SPAC Insider, the average SPAC that has IPO’d and is searching for a target company to acquire is trading at a 9.2% premium. This premium may range from 0% to 40% depending on the sponsor of the SPAC, which we’ll get into later in this article. Similarly, the average SPAC that has announced an acquisition target trades at a 41% premium. The premium here ranges greatly from 10% - 200% and depends heavily on the target company. Based on our assessment of SPACs, $PSTH has the potential to trade on the upper end of both ranges post-IPO and post-acquisition announcement. Here’s why…

$PSTH is raising $4B to acquire a company - this gives them an advantage over other SPACs because $PSTH will have access to companies other SPACs won’t. The SPAC space is getting competitive as the number of SPACs going public increased from 7 in 2010 to 65 in 2020. The more SPACs on the market means more competition for high-quality private companies to bring public. $PSTH has an advantage by raising $4B because it can access more expensive, higher-value private companies than others. Because of this, $PSTH has a higher chance of success and the target company will likely be high-quality, which will result in a higher trading price post-IPO and post-acquisition announcement.

$PSTH (PSTH, PSTHU, PSTH.U) has a big name sponsor which has been shown to drive the SPAC share prices post-IPO. Investing in SPACs is similar to investing in venture capital (VC) or private equity (PE). It effectively allows investors who do not have the capital requirements to allocate capital towards an investment vehicle (the SPAC) which a team of seasoned investors will leverage to invest in a private company and take it public. SPACs with name brand sponsors often draw the most attention because they are well connected in the VC/PE world and have a higher chance of acquiring a coveted private company. $PSTH has the benefit of having Bill Ackman backing it, which will draw significant attention as Ackman is a well known activist investor who recently turned $27M into $2.6B during the COVID crisis in March.

Finally, $PSTH has a unique tontine structure which will increase the likelihood of a successful business combination and for the SPAC price to trade on the higher end of the average range of SPAC returns post-acquisition announcement.

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