How A-listers are driving speculative investment craze

Not many things unite 7 foot tall basketball player Shaquille O’Neal, rapper Jay-Z and former top Trump official Gary Cohn. But in their own worlds, all of those names attract a certain amount of stardust.

Now, the trio are among a gaggle of A-listers seeking to cash in on that magic through the latest Wall Street craze: the special purpose acquisition company. SPACs are blank-cheque companies. They go public, aiming to raise a few hundred million dollars on stockmarkets, with the intention of buying a fast-growing tech company within two years. These shell companies have no revenue, but promise a quick route to market for a technology founder and investors are typically not told what the target is before forking out their money.

Forest Road Acquisition Corp’s SPAC, backed by O’Neal, last month bought fitness company Beachbody in a $US2.8 billion ($3.6 billion) deal.

Other celebrities who have invested in SPACs include tennis star Serena Williams, anti-racism activist and NFL quarterback Colin Kaepernick and Billy Beane, whose career at baseball team the Oakland A’s was immortalised in the film Moneyball. All these famous names have helped kick off an investment frenzy. SPACs have so far sucked in $US72 billion of cash in listings this year, according to data from monitoring service SPACInsider – almost as much as the total for the whole of 2020 – while regular floats have raised around $US25 billion. However, the influx of celebrities and politicians is making some investors nervous.

Charlie Munger, a long-time business partner of Warren Buffett, said of celebrity SPAC deals last month: “The investment banking profession will sell shit as long as shit can be sold.”

Some are beginning to compare the phenomenon to the bubble in ICOs, or initial coin offerings – a 2018 trend in which celebrities lent their names to all manner of cryptocurrency schemes that raised hundreds of millions of dollars and then in many cases lost it all. “During the ICO craze, a project needed only a team, a website and a white paper,” wrote Mati Greenspan, of Quantum Economics. “With this new SPAC phenomenon, all you really need is a celebrity and a dream.”

SPACs backed by celebrities have already landed several merger deals in which they will take private companies onto US stock markets. Forest Road lists O’Neal as “a strategic adviser [with] a keen eye for investing in successful ventures, having invested in Google prior to its initial public offering”. Other advisers include Kevin Mayer, the former head of Disney+ and former chief of TikTok. The company will take two firms public in a three-way merger, home-fitness company Beachbody and fitness bike company Myx. It will list with the ticker “Body”.

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Meanwhile, the SPAC Subversive Capital acquired US cannabis company Caliva, backed by Jay-Z. He will stay on as “chief visionary officer”. A-listers and sports royalty are not the only ones getting in on the action. Washington elites are also eyeing deals. Former Republican House speaker Paul Ryan has an acquisition company, as does Cohn, a former top executive at Goldman Sachs and one-time adviser to Donald Trump. A raft of ex-chief executives at major firms are setting up in the market too.