SPACs are an interesting bet in the best of times. These Special Purpose Acquisition Companies exist just to purchase a third-party firm and absorb it entirely, essentially becoming that firm in the process. So the success or failure of a given SPAC depends almost entirely on how good it is at finding a target for assimilation.
When that potential acquisition gets hammered, well… that can shake up the fortunes of the SPAC too.
“One minute you're up a half million in Mudrick Capital Acquisition Corp MUDS,” writes Timothy Collins, “and the next, boom, your kids don't go to college, and they've repossessed your Tesla.”
And all it took was a two-sentence announcement from Major League Baseball.
As Collins wrote recently, "Days ago, I, along with many others, were singing the praises of The Topps Company, the acquisition candidate for (MUDS) . Then [...] Major League Baseball dropped a bombshell. After 70 years, Topps would no longer have a deal in place to produce Topps Baseball Cards. Instead, Fanatics will be taking over the exclusive license."
What does that mean?
For Collins, "MUDS was a fundamental investment thesis for me. I wrote a few days ago how poor the technicals looked, but I did like the fundamentals of Topps after its most recent earnings report. Now, that fundamental thesis is dead. It's not just that Topps will lose MLB, but MUDS terminated its intention to buy Topps."
In other words, MUDS is back to being a SPAC in search of a target and that's problematic, according to Collins.
"Now, I have to ask if I want to own a SPAC, trading slightly under net asset value (NAV) with a management team that has one de-SPAC name that has traded terribly and was active in AMC Entertainment ( AMC) and public about it. Neither of those two things worked out well nor did the Topps deal."
"I could sit in MUDS, likely only giving up opportunity costs with the money as the NAV, net of expenses and fees, should be around the current price or a bit above it, but I would have to strongly believe in management. I don't."
It is, as Collins has written before, all about the fundamentals. With a different company, he might believe that the SPAC could rally, find a new acquisition and build back strong. With MUDS? “I'm closing my position and removing the ticker from my screens.”