THE LOOMING SPAC MELTDOWN

What’s driving SPAC mania on Wall Street? Not the billionaires and bankers making headlines daily, but a mob of little-known hedge fund investors, the “SPAC Mafia,” who are incentivized to gobble up these opaque public offerings with little concern over whether they ultimately succeed or fail.

- ANTOINE GARA, ELIZA HAVERSTOCK AND SERGEI KLEBNIKOV

if you want to see the future of so many of the special purpose acquisition companies currently flooding the market, look to the recent past. Nearly five years ago, Landry’s Seafood billionaire Tillman Fertitta took Landcadia Holdings public to the tune of $345 million. No matter that, true to the SPAC “blank check” model, there was not yet any operating business—dozens of hedge funds piled into its $10-per-unit IPO.

In May 2018, Landcadia finally located its target: a budding online restaurant delivery service called Waitr that would merge with the SPAC in exchange for $252 million in cash. Fertitta touted the fact that the Louisiana startup, with $65 million in revenue, would now have access to 4 million loyalty members of his restaurant and casino businesses, and a new partnership with his Houston Rockets NBA franchise. Two years later, though, you very likely have never heard of Waitr. As such, its stock recently traded at $2.62, down more than 70% from its IPO price (the S&P 500 has climbed 76% over the same period).

Waitr was a disaster for pretty much anyone who bought the stock early. But the hedge funds that purchased Landcadia’s IPO units did just fine. Virtually all recouped their initial investment, with interest, and many profited by exercising warrants in the aftermarket. “SPACs are a phenomenal yield alternative,” says David Sultan, chief investment officer at Fir Tree Partners, a $3 billion hedge fund that bought into Fertitta’s Landcadia SPAC IPO—and pretty much any other it could get its hands on.