PIPE Deals During SPACs: Are We Being Played Here? - YouTube

What's up millennials? Are the suits actually  screwing us because it looks like there might be  

something unfair going on in the SPAC market and  i would like to talk about it. In February i did  

an interview with Mark Hake. Mark Hake is a SPAC  analyst who writes many many articles about SPACs  

and in this interview we talked about the PIPE  deals. PIPE deals are the private investment in  

public equity so what this means is that there are  private investors who can get in at ten dollars  

per share and then the cash that the SPAC raises  that way can be passed on to the company they are  

going to merge with. I'm going to play a portion  of this interview and then i'm going to provide  

you with some additional comments from my side and  i'm going to put the link to the entire interview  

in the description as well. All right i'll see  you in a few minutes. Problem i see with SPACs,  

let me just go before i said that there's  some issues, the main problem with SPACs are

that the sponsors of these deals are  normally getting a higher percentage  

than they would normally get than  let's say if it was an IPO deal  

and the PIPEs, the private investment in public  equities, that are making investments in these  

SPACs are getting sweetheart deals right in front  of everybody that i don't think can last. The  

sweetheart deal is they get to invest in almost  every one of these deals at ten dollars per share  

even when the SPAC is trading at the announcement  time at 15 or even 20 dollars per share  

so at some point there's going to be a situation  where the SPAC investors will simply turn down  

the deal because the PIPE investors are getting  too much of a cut if you will out of the deal.  

That may happen or if somebody's really smart  they'll put together a fund where you can invest  

simply in the SPACs, i'm sorry in the PIPEs, that  are doing these SPACs. In fact i'm looking for one  

right now so these PIPEs basically are putting up  capital and they have the same deal as everybody  

else except they're getting guaranteed that  they get to buy in at ten dollars even when  

the merger closes and by the time the merger  closes if it's any way near a successful deal  

it's gonna be way above ten dollars so they have  no almost no downside risk from my standpoint.  

They could literally just borrow the money and  they probably almost all of them were just going  

out and getting a line of credit just to do  every particular SPAC deal without even having

to actually have the cash in their bank. Do  you think these like sweetheart deals as you  

call them could be actually an issue for the  retail investors people like me and the people  

that watch my videos? In what sense? Well you  know, you the SPAC investors normally as a group  

aren't getting normally as a total post merger  ownership state normally not more than 20 to  

25 percent of the total deal right. For example  the private company usually gets anywhere from  

50 to 80% of the deal, the sponsor gets maybe  five percent and the SPAC might get 10 to 20 to  

30 percent of the deal. Yeah right makes sense.  Now what i like are SPACs where there is no PIPE.  

There was one real famously and i mentioned  this to you though they ... Lancandia which  

did the Golden Nugget Gaming, online gaming.  They avoided that because the the sponsor  

was a very astute gentleman Tilman Fertitta who  recognized this. That took a while for the SPAC  

actually pass the merger because the PIPE  wasn't there to actually you know sign up for  

the deal and give enough votes to get the deal  across the line however. Now the SPAC investors  

own a much larger percentage of the company so  they'll get a larger percent of the total earnings  

and if the company decides to raise any more  capital it'll be at a market price. Right okay,  

do you think we should get rid of these PIPE  investments altogether or just change the  

rules maybe or? Well again there's a trade-off  because the company the private companies only  

willing to do this typically this ... the  pro ... the PIPE will add in anywhere from  

50 to 100 percent of the amount of  money that the SPAC itself is providing  

right so it's essentially a guaranteed deal for  the private company to know that the SPAC money  

is there for them and the PIPE money is there for  them. They can maybe even go out and get a bridge  

loan immediately once they sign the deal but i do  think that there should be some more scrutiny on  

by the market not by regulators because  they're going to just mess it up  

on how pipes and the sponsors themselves are  getting remunerated in this whole process.  

How could people like me do that? Let me give you  a real good example. This Lucid deal with CCIV,  

if they pull this deal off and by  the way it's based here in Phoenix  

just down the street... You mean CCIV or Lucid?  Yeah lucid is Casa Grande which is you know  

50 miles south of Phoenix. It's  halfway between Queensland and Tucson  

and ... Can you go check if they're  actually going to work with CCIV?

Nikola by the way is building a plant in Casa  Grande too. You should go to Trevor Milton.  

Here's the thing. They ... if that deal  ... where's the stock at right now, $24  

or something like that? Even higher, I've  seen it at like $34 or something. There is  

no way they can allow a PIPE to come in  at ten dollars. If that deal gets closed  

that would be to me just beyond ridiculous okay,  do you see what i'm saying? How could they ... how  

could they in all good faith say okay we've got  500 million in this SPAC but oh by the way you  

PIPE you can come in here at ten dollars and you  get to get make a ... you know more than 100%  

on your money just for saying you're going to  put up the money you know. If i had 500 million  

dollars i would call them up that day and say stop  i'll give you the deal at $15 right now. In fact  

at some point that will happen. But you're saying  ... you're saying it should not be regulated i  

believe right? I think you've just said something  about regulators that they should be ... You know  

what i mean you gotta let the market come up  and say okay you know you might have ... you  

know more of an auction process happen for  the SPAC or the PIPE deal to have you know ...

or force the PIPE to ... i don't know ...

i don't know ... there's got to be some  more conditions put in it i would think  

but if whoever's running Lucid allows a PIPE to  get in there ten dollars to me that would be the  

ultimate sort of ... These guys don't really  care too much about shareholders that's what  

i would say. So as you've now heard from Mark  Hake himself as well there are PIPE deals going  

on that simply look like sweetheart deals. These  PIPE investors can simply get in at ten dollars  

per share even if the stock is already trading  way higher than that ten dollars per share.  

There's basically no downside risk. They can  even go ahead and borrow money from other people  

to get into that SPAC and almost instantly make  money. It's almost a little bit like a machine  

where you put ten dollars in and you get fifteen  dollars in return or twenty dollars in return  

or thirteen dollars in return right away. And the  comment about Lucid Motors from Mark was actually  

very on point because the interview was actually  recorded before this deal was announced and the  

PIPE deal from Lucid Motors was not ten dollars  per share but it was actually raised to fifteen  

dollars per share but that still meant that the  PIPE investors were getting a very great deal  

because they were just putting in fifteen dollars  per share while the stock was already at forty,  

fifty even sixty dollars per share. Of course  it has corrected a little bit but it's still  

around that thirty dollars per share level. Now i  will say this because usually there is a lock-up  

period. The PIPE investors usually have to lock  up their shares for about six months usually,  

180 days so of course that is a slight risk.  They do need to keep holding those shares for six  

months. So the question then becomes if this is  a problem what could be a potential solution for  

this problem? Could we maybe get rid of all the  PIPE investments all together? Well the problem is  

yes on the one hand it is maybe good for SPAC  investors because they can get a larger share  

of the pie but on the other hand PIPE investors  do bring in quite a lot of money that goes to  

the balance sheet of the company the SPAC is  going to merge with so if there is no PIPE  

investment going on then the company is going  to have less money on their balance sheet.  

Should we maybe then regulate everything? Well as  you heard from Mark Hake this probably is not a  

good solution either because the regulators just  screw it up anyways. Now Mark suggests that this  

could maybe be solved by the market and it's not  entirely sure how it would be solved by the market  

but i think the fact that we are talking about a  private investment in public equity already makes  

it quite difficult because people like you and me  cannot invest in such a deal. I think if you would  

have a more open ... a more free market with just  supply and demand then i think the price would be  

very much closer to that market price instead  of just a fixed dollar amount of ten dollars  

per share or fifteen dollars per share in the case  of Lucid Motors so by opening up the PIPE markets  

maybe we could get to a sort of auction process  where everyone can just bid on the PIPE deals  

and then because of supply and demand i think  that the price would actually be a little bit more  

reasonable than the prices we have got going on  right now. Another potential solution could maybe  

be to raise the amount of shares from the SPAC so  then you would have a larger portion of that SPAC  

but you would also have more money that the SPAC  can actually bring on, pass on to the company they  

are going to merge with and this is also going to  lead to a higher percentage of ownership by the  

SPAC investors, people like you and me. So yes  i do think there might be potential issues with  

these PIPE investments and i would like to know  your opinion as well. What do you think could be  

a potential solution to this problem? Let me know  in the comments and with that being said thank you  

very much for taking the time to watch this video  and i hope to see you in the next one. Bye bye!