Social Capital Hedosophia Holdings IV Corporation (IPOD) is a SPAC (special purpose acquisition company) led by Chamath Palihapitiya and Ian Osborne. The blank-check company was formed with the focus of merging with private technology companies. Should you buy IPOD stock before Palihapitiya finds a merger target?
Investors buying SPAC stock before a merger is announced are generally betting on the reputation of the SPAC leaders. IPOD stock is trading at a 59 percent premium to its IPO price of $10 with no merger. The stock closed at $15.89 on Jan. 25 after falling 7.6 percent that day.
Chamath Palihapitiya SPACs
Chamath Palihapitiya has launched six SPACs to date:
- Social Capital Hedosophia Holdings I Corporation (IPOA), which raised $600 million by selling 60 million shares for $10 apiece. IPOA merged with Virgin Galactic Holdings.
- Social Capital Hedosophia Holdings II Corporation (IPOB), which raised $360 million by selling 36 million shares for $10 apiece. IPOB merged with Opendoor Technologies.
- Social Capital Hedosophia Holdings III Corporation (IPOC), which raised $720 million by selling 72 million shares for $10 apiece. IPOC merged with Clover Health Investments.
- Social Capital Hedosophia Holdings IV Corporation (IPOD), which raised $400 million by selling 40 million shares for $10 apiece.
- Social Capital Hedosophia Holdings V Corporation (IPOE), which raised $700 million by selling 70 million shares for $10 apiece. IPOE announced a merger agreement with SoFi (Social Finance).
- Social Capital Hedosophia Holdings VI Corporation (IPOF), which raised $1 billion by selling 100 million shares for $10 apiece.
Which company will IPOD merge with?
IPOD is looking to merge with companies in the technology industry. In a filing, IPOD wrote, “Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus on businesses operating in the technology industries.” The technology umbrella has widened to include fintech and electric vehicle companies.
Should I buy IPOD stock before merger?
IPOD stock could generate significant returns if Palihapitiya finds the right target company and the SPAC market doesn't sour. The stock has gained 15 percent in the past month and is trading 13.2 percent below its 52-week high of $18.31 on Jan. 25.
IPOA and IPOB have performed well. IPOE stock surged 58 percent after it announced a merger deal with well-known fintech company SoFi. Many other SPAC stocks did the same after the companies announced deals.
Are SPACs in a bubble?
On Jan. 25, IPOE and IPOF stocks dropped 5.4 and 4.7 percent, respectively. According to Goldman Sachs, the SPAC space looks a lot like a bubble. In 2021, 56 SPAC IPOs have been completed, raising about $16 billion. In 2020, there were 229 U.S. SPACs announced and they raised a total of $76 billion.
Goldman Sachs believes the popularity of SPACs will continue in the short term because of their flexible structure, lower interest rates, and the 24-month window to find a target before returning capital. The investment firm believes the S&P 500 won’t collapse even if investor enthusiasm for SPACs fades.