Hedge fund manager Bill Ackman raised $ 4 billion Wednesday through an IPO for a special-purpose acquisition company (SPAC), the largest such offering in history.
Because it is important: SPACs, publicly traded shell companies designed to acquire other companies, are flooding Wall Street, creating new pathways to public markets for everything from DraftKings to Virgin Galactic and health insurance software giant MultiPlan.
Almost 50 SPACs have already been made public in 2020, raising more than $ 20 billion. By context, SPACs raised $ 13.3 billion in all of 2019 and less than $ 4 billion in 2015.
- A SPAC led by former Citigroup executive Michael Klein last month completed SPAC’s largest deal, agreeing to acquire MultiPlan at an initial business value of $ 11 billion.
- Only a week later, Churchill Capital Corp. IV requested an IPO.
“They are now considered as viable as any other IPO path, and they are all performing well,” Niccolo de Masi, former CEO of gaming company Glu Mobile and co-sponsor of two SPACs, told Axios. “SPACs are so institutionalized.”
Retrospective scene: In the 1980s, so-called blank check companies earned a reputation for fraud.
- The Penny Stock Reform Act of 1990 and SEC Rule 419 introduced reforms, and the SPACs emerged in 1992 as a more modern version with stronger investor protections and regulatory approval.
Some in Silicon Valley view SPACs as preferable to a traditional OPV.
- Compared to the standard IPO process, it is much faster with fewer disclosure requirements.
- They appeal to the fundamental trends of Silicon Valley investors: bringing in a small amount of capital, owning a huge part of the company, and making multiple bets, preferably guided by an underlying thesis or method.
- “The SPAC structure helped us divide the difference between doing a private round and going public,” George Arison, co-founder of the online car market Shift, told Axios.
Yes, but: SPACs are not without risk. For example, shareholders can block a deal.
The bottom line: Prepare for even more SPAC.
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