Monday, November 30, 2020

Special-purpose acquisition company (SPAC)

SPACs—or Special Purpose Acquisition Companies—are publicly-traded investment vehicles that raise funds via an initial public offering (IPO) in order to complete a targeted acquisition.

SPACs have become an increasingly popular way method of going public. Rather than go through the traditional IPO market, an investor or firm uses a SPAC to raise funds to finance an acquisition within a certain time frame – and the company that is acquired is effectively taken public.


It’s been a mania in SPACs as businesses shy away from the traditional initial public offering market roiled by the coronavirus pandemic and wild volatility. So far in 2020, there have been 51 SPAC offerings, raising a record $21.5 billion, up 145% from the same period a year ago, according to Goldman.

Last month, Bill Ackman’s Pershing Square Tontine Holdings raised $4 billion to become the largest SPAC in history. Other notable SPAC acquisitions this year include Nikola and DraftKings.

A SPAC is a blank-check company formed to raise funds to finance a merger or acquisition within a certain time frame, typically two years. The target firm will be taken public through the acquisition. Goldman estimated that completed SPAC offerings currently searching for acquisitions exceeds $38 billion.

Goldman analyzed 56 SPACs that completed translations since the beginning of 2018 and found that in the long run, they tend to underperform the broader market and returns are all over the place.

US SPACs, IPO capital raised:
  • 2013: $1 billion
  • 2014: $2 billion
  • 2015: $4 billion
  • 2016: $3 billion
  • 2017: $11 billion
  • 2018: $9 billion
  • 2019: $13 billion
  • 2020: $83 billion
  • 2021 YTD: $23 billion as of 1/26 (less than a month)
News:
  • Feb 19, 2021: Michael Dell, activist investor Paul Singer, Facebook Inc. co-founder Eduardo Saverin and former Xerox Corp. chief Ursula Burns all joined the blank-check parade on Friday, with at least 13 of these companies filing for U.S. IPOs to raise more than $4.5 billion.

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