When SPACs Attack! A New Force Is Invading Wall Street.
Jan 23, 2021 5 mins, 3 secs
Same goes for silver-haired hedge-fund billionaire William Ackman.

It’s called a SPAC, and increasingly it is the favorite source of financing for private companies looking to go public.

went public through a SPAC in 2019, and sports-wagering firm.

Nearly 300 SPACs are now seeking deals, armed with about $90 billion in cash.

Some on Wall Street call them “blank-check companies’’ because the investors backing the SPAC put up their money months before an acquisition target is identified, trusting the people running the show to find a good deal.

These deals are generating a lot of interest because they produce big paydays for their creators, make it easier for startups in hot industries such as electric vehicles to capitalize on a frothy run-up in the stock market and offer everyday investors a new path to a hot stock.

If it bursts, it could leave a few insiders as winners while saddling individual investors who got in late with big losses.

The SPACs are pulling in more than 70% of all money raised through initial public offerings this month, up from nearly half last year and about 20% the year before, according to Dealogic data through Thursday.

The 67 SPACs created this year have already raked in nearly $20 billion from investors.

That is well above the total from all of 2019, which was a record before last year’s historic haul of $82 billion.

Oyster Enterprises Acquisition,.

FoxWayne Enterprises Acquisition.

Many of the 287 SPACs currently hunting for targets are looking for deals in hot sectors such as technology or electric vehicles, according to figures from data provider SPAC Research.

That means deals adding up to several hundred billion dollars are likely to be completed in the coming months, analysts say, setting SPACs up to be a powerful force in markets.

Cash held by SPAC.

Foley Trasimene Acquisition.

Forest Road Acquisition.

Cash held by SPAC.

Foley Trasimene Acquisition.

Forest Road Acquisition.

Cash held by SPAC.

Foley Trasimene Acquisition

Cash held by SPAC

Foley Trasimene Acquisition

Cash held

$4 billion

$1 billion

Trasimene Acquisition

Forest Road Acquisition

$4 billion

$1 billion

Source: Dow Jones Market Data analysis of SPAC Research figures

“When you have everybody talking about SPACs, it raises the issue as to whether or not there is an element of speculative mania,” said Roy Behren, managing member at Westchester Capital Management and a SPAC investor

The first special-purpose acquisition company was created in 1993 by investment banker David Nussbaum and lawyer David Miller

SPACs turned hot for brief periods in the ‘90s, then again in the 2000s, only to fade with market crashes or a surge in traditional IPOs

New laws and regulations helped bolster their reputation, as did changes that made it easier for investors to get their money back before a deal went through

A typical SPAC goes public on a U.S

exchange having raised money from investors with the promise of buying a company

The target, often a startup, then takes the SPAC’s place on the exchange, allowing public investors to buy its shares

If the blank-check firm doesn’t complete an acquisition, investors get their money back

What some don’t like is that SPACs and the mergers they produce are negotiated behind closed doors and prices are less dependent on real-time demand from investors

Another concern is that companies going public through SPACs are allowed to more easily tout their long-term growth forecasts in splashy presentations on YouTube instead of staying silent as they would during a traditional IPO

said last year that the agency is examining how blank-check company creators disclose their ownership and how any of their compensation is tied to an acquisition

The average time it takes for a SPAC to find a merger deal dropped from 17 months in 2018 to five in 2020, and many lately have needed less than that

negotiated with SPAC Oaktree Acquisition Corp

for about four months before reaching a $1.6 billion deal in October that closed this week, the company’s co-founder and CEO Andrew Dudum said

They initially put up a small amount to cover expenses before the SPAC goes public and then are typically allowed to buy 20% of the company at a deep discount after the SPAC combines with another firm

executive and venture capitalist Chamath Palihapitiya, who created his first SPAC in 2017

In 2019, the SPAC merged with Virgin Galactic to take it public

Virgin Galactic shares have surged, giving the company that had $238,000 in sales during the first nine months of 2020 a market value north of $8 billion

Some tech companies and venture capitalists saw SPACs as a way to raise money without being subjected to the whims of the suddenly volatile stock market

“The SPAC market has moved from Wall Street to Silicon Valley,” said Tyler Dickson, co-head of

It is now valued at $42 billion, making it roughly the same size as companies that churn profits such as

It is by far the largest SPAC ever

Electric-vehicle startups and SPACs trying to buy them are also attracting a lot of interest as investors vie to identify the next Tesla Inc

In total, 26 companies tied to mobility and technology merged with SPACs in 2020 and recently had a combined market value of more than $100 billion, according to data provider PitchBook

Another deal tied to the sector was announced Friday morning, with

Climate Change Crisis Real Impact I Acquisition

combining with EV charging-station company EVGo Services LLC in a deal that values the company at $2.6 billion

tumbled after both companies were targeted by investors called short sellers who bet that a firm’s value will drop

It still has a market value of nearly $8 billion even after its founder resigned and the company fell short of objectives it set

For a brief window during the fall, the SPAC market started to show cracks

Some SPAC stock prices started falling below the raw amount of cash the SPACs held per share—an odd phenomenon given that investors can ask for their cash back if they don’t like the deal a SPAC makes

With demand drying up, banks even pushed SPAC creators to hold off on going to market

Another example came earlier this month, when another SPAC created by Mr

Palihapitiya unveiled an $8.65 billion deal to take financial-technology firm Social Finance Inc

The SPAC’s shares have nearly doubled since then, with the deal expected to close in the coming months

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