Billionaire investor Sam Zell told CNBC on Tuesday that some deals involving special purpose acquisition companies remind him of the speculation in internet companies during the 1990s dot-com bubble.
In an interview on “Squawk Box,” Zell said he believes SPACs do offer positive benefits for investors who buy in at the creation of the so-called blank check companies. However, the founder of Equity Group Investments said he’s worried about the fundamental business prospects for some companies that go public via a SPAC.
“If done well, it’s a very effective transaction. It’s one of the few times where the quote-unquote buyer has enormous power,” Zell said. “In other words, if you’re a buyer of an IPO SPAC, the worst thing that can happen is you get your money back in the cost to carry. The best thing that can happen is they make a very attractive deal and then you have a decision to make as to whether you want to play or not.”
But in some cases, Zell said the SPAC’s target company is not that attractive. No did not mention any names. “In this speculative environment we’re talking, you’ve had a number of these SPACs done with making money going to the moon and I saw one the other day on electric charging stations” where the company did not project positive cash flow for years, Zell said. “This is rampant speculation again, very much like the dot-com boom.”
Investor enthusiasm for highly speculative internet stocks helped push the tech-heavy Nasdaq up more than 500% from 1995 until the bubble burst in March 2000.