If you were an investor who got burned during the SPAC craze of 2020 and 2021, I wouldn’t blame you for swearing off special purpose acquisition company deals forever. In the wake of Covid-19 stimulus payments, eager retail investors, and the zero-rate environment, SPAC deals became an increasingly popular way to take a company public and raise a lot of money.
But there were plenty of misses. For every deal that turned into a stable company—such as DraftKings (DKNG) and SoFi Technologies (SOFI)—there were some real stinkers, such as Nikola (NKLAQ), Canoo (GOEVQ), and Lordstown Motors.
Now so-called “SPAC King” Chamath Palihapitiya is back with a new SPAC that’s looking for a deal of its own. The American Exceptionalism Acquisition Corp. A (AEXA) is currently trading on the New York Stock Exchange and is seeking to partner with a company in AI, energy, defense, or decentralized finance.
Palihapitiya doesn’t have the best track record of turning SPAC deals into good investments. He was responsible for Virgin Galactic (SPCE), Clover Health Investments (CLOV), and Opendoor Technologies (OPEN)—the latter that is only doing better now because it’s getting meme stock support.
But Palihapitiya says that this SPAC is being run differently, and that, he says, gives it a better chance for success. Is AEXA stock worth your investment?
American Exceptionalism Acquisition Corp. launched AEXA stock on Sept. 26 with an initial public offering of 30 million shares valued at $10, plus an additional 4.5 million shares issued following the exercise of underwriters’ over-allotment option. That values the company at $345 million.
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The SPAC dropped simultaneously as Palihapitiya posted on X (formerly Twitter) an image that simply said, “I’m Back.”
However, Palihapitiya said in the social media post that this SPAC will be substantially different from the ones he launched in the SPAC heyday of 2020 and 2021.
“I have seen how the perception of SPACs became clouded, particularly related to sponsor compensation, forward guidance and retail investors’ involvement,” he wrote. “With American Exceptionalism Acquisition Corp. A, I wanted to address this directly and make improvements based on what I’ve learned.”
Specifically, he said this SPAC offering includes no warrants, and sponsor compensation is tied directly to stock price appreciation. “If it is a winner, we will all win…together,” Palihapitiya wrote.
In addition, Palihapitiya said the SPAC deal limits retail investors’ involvement. Previous SPAC deals rose and fell based on retail investors and the chatter they created on social media channels, but Palihapitiya hopes to limit that for AEXA stock. Only 1.3% of the IPO was allocated to retail investors.
“We designed it this way, almost entirely institutionally backed, because, as I have learned, these vehicles are not ideal for most retail investors. They are for investors who can underwrite the volatility, place it as part of a broader structured portfolio and have the capital to support the company over the long run,” Palihapitiya wrote. “For anyone in the retail market who still chooses to disregard my advice to avoid SPACs, please carefully review our disclosures and make a fully informed decision.”
The four sectors that Palihapitiya targets for a SPAC deal—artificial intelligence, energy, defense, and decentralized finance—are high-flying sectors where investor attention is intense.
AI perhaps may be the biggest growth driver on Wall Street right now, with companies big and small developing products and features that capitalize on AI’s potential. A SPAC deal with an up-and-coming AI startup could help draw rapid investor enthusiasm.
Energy is another driver, partially as a result of AI. The increasing need for data centers to draw power to operate AI applications is dramatically increasing the nation’s power demand. Also, the Trump administration is eager for the U.S. to be energy independent, so utility companies and companies that work with utility infrastructure could be targets as well for a SPAC deal.
Defense companies are an interesting play. There are a lot of smaller government contractors who do millions of dollars of work every year for the U.S. government. These companies are doing everything from consulting to helping to modernize computing systems and operations—if one of them wanted to expand and go public, AEXA would be an ideal opportunity.
And finally, DeFi doesn’t have as much interest today as it did a few years ago. But as the federal government reduces the amount of financial regulation in the U.S., there could be an interesting opportunity for a SPAC deal.
The American Exceptionalism Acquisition Corp. A SPAC is specifically designed not to be a meme stock, which is interesting. Trading volumes are relatively low, at about 235,000 shares, so this will not be a stock that moves because of artificially conquered momentum from Reddit.
And it’s also smaller than his previous efforts. His Social Capital Hedosophia Holdings Corp, which eventually merged to create Virgin Galactic, had 72 million shares versus 34.5 million for AEXA.
So, it comes down to this—do you believe in Palihapitiya? This is a SPAC deal that is purely centered on his name, and Palihapitiya indicates that he’s learned important lessons from SPAC deals of the past.
If anything, it will be interesting to watch.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
