As posted on the FreshBooks Blog (there are some comments there too):

Sometimes I see things I just don’t believe in. Here’s an example.

A recent Fortune Magazine article describes how Dov Charney, the founder and CEO of American Apparel, raised money through a SPAC. SPACs are shell companies that raise hundreds of millions in equity and go public. Once public they wait for an opportunity and once they find one, they put their equity to work. Since going public is such a painful process with Sarbanes Oxley and all the other red tape, SPACs are attractive to entrepreneurs as a quick way to raise big capital.

Here’s my thing: I just don’t believe in SPACs. Time may prove me wrong, and if that’s the case, so be it.

American Apparel is an interesting company who has grown very quickly. They do untraditional things like manufacture all their garments in the US, which in these times of outsourcing, I applaud them for. That said, SPACs seem like soulless entities to me. What are the odds they share the business values of the people at American Apparel? Slim to none I’d say. What if the dark clouds come when you have an investor like that? Wouldn’t be pretty I suspect.

Time will tell. Let’s give it 5-10 years. Standing here today, American Apparel’s decision to take investment from a SPAC seems like folly to me.

SPACs remind me of something we recently went through up here in Canada – income trusts. Income trusts were all the rage in Canada in recent years, and with all due respect to those who believed that simply by converting to an income trust corporations could simply side-step income taxes, you were fools.

Things that sound too good to be true, usually are too good to be true. Other things like SPACs, they fall into the category of things I just don’t believe in.