Merger Anticipation Could Drive Ackman’s Pershing Square Tontine Higher

Merger Anticipation Could Drive Ackman’s Pershing Square Tontine Higher

The activist investor’s reputation has SPAC money betting on a big deal

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Q4 2020 hedge fund letters, conferences and more

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The resurgence of special purpose acquisition companies (SPACs) has created some of the markets hottest opportunities, such as Pershing Square Tontine (NYSE:PSTH). Set up by Bill Ackman of Pershing Square Capital, PTSH has already rallied from a low of $21.88 to a recent high of $31.21.

Shortly after, it would pull back to double-bottom support at $25.20 and is now challenging resistance around $30. If it can break out here, I’d like to see the SPAC run to $40, near-term.

After all, there’s plenty to get excited about with these companies.

Also known as “blank check companies,” these companies raise money through a public offering and then use the proceeds to acquire or merge with a business already operating. While many have been around for a while, they’ve been doing extraordinarily well lately because of the sectors they’ve been targeting, including electric and autonomous vehicles, as well as online gambling.

They’re cashing in on fast-growing industries, much like I expect Ackman’s PSTH to do.

Blank Check Companies are Hot

While not all SPAC mergers are successful, as pointed out by InvestorPlace contributor Tezcan Gecgil, there have been some standouts.

Look at CIIG Merger Corp. (NASDAQ:CIIC) for example. In November, CIIC was a $19 stock. A month later, it was up to $37.18 per share. One of its targets is U.K.-based Arrival, an electric bus and van maker that CIIC recently took public with a good deal of excitement. In fact, Arrival forecasts that the market for vans and buses could be worth $430 billion by 2025.

Or, look at Churchill Capital Corp. IV (NYSE:CCIV).

Since the start of the year, CCIV exploded from a low of $10.03 to a high of $35.18. All on speculation it would take Lucid Motors, which some refer to as “the next Tesla (NASDAQ:TSLA),” public.

According to The Detroit Bureau contributor Michael Strong, EV-maker Lucid “is in the process of completing its manufacturing facility in Casa Grande, Arizona, but perhaps more importantly, its looking to tie-up the loose ends on a SPAC that could be valued at as much as $15 billion.”

While that deal hasn’t been announced just yet, speculation was enough to send CCIV stock to explosive highs.

Pershing Square Tontine Stock Could Offer the Same Upside

A good number of investors have been buying PSTH stock because of Bill Ackman. Known as a respected contrarian investor, he’s a well-known hedge fund manager and billionaire. So, investors are simply following the smart money.

Plus, investors anticipate a sizable merger deal going forward. After all, Ackman has already said Pershing Square Tontine “intends to pursue merger opportunities with private, large capitalization, high-quality, growth companies.” To date, one of those companies was thought to be Stripe. However, Stripe CEO Patrick Collison said “there’s no such deal.”

Broad Acquisition Criteria

While we’re not 100% certain of specific companies, we are aware of the acquisition criteria.

Ackman and company are looking for:

  • Simple, predictable and free cash flow generative
  • Formidable barriers to entry
  • Limited exposure to extrinsic factors they cannot control
  • Strong balance sheet
  • Minimal capital market dependency
  • Large capitalization
  • Attractive valuation
  • Exceptional management and governance

Again, while I’m not sure of specific targets, I do believe the SPAC could push to explosive new highs when an opportunity is announced. Plus, with Ackman heading the operation, a good number of investors will be waiting to see what he does next.

In my opinion, the best thing to do here is take a small position in the SPAC and wait. When a potential deal is announced, potential excitement could drive this stock higher. Be patient with this one. Anticipation and an announcement could send this stock higher.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.

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