Investors And Young Entrepreneurs Hit Billionaire Status Through A Special Purpose Acquisition Company, Or SPACs
SPAC Deal Will Make 25-Year-Old Luminar Founder a Billionaire. Investors And Young Entrepreneurs Hit Billionaire Status Through A Special Purpose Acquisition Company, Or SPACs
Why Blank Check Companies (SPACs) Are Filling Up Fast: QuickTake
Special purpose acquisition company is a boring name for something generating a ton of excitement in financial circles this year. How about “blank check companies” — that’s more appealing. Or the idea of billion-dollar pools of cash, or the chance to buy into promising startups without the uncertainty of an IPO. Put it all together and SPACs sound pretty alluring. So far this year they’ve raised over $30 billion, more than double last year’s $12.4 billion. Whether the format will stick or is just a fad remains to be seen.
1. What Are SPACs?
Companies that raise money for buying businesses. The reason they’re known as blank-check companies as they generally don’t have a merger target when they are formed. It’s as if investors are giving the sponsor of the SPAC a blank check to use as she sees fit.
2. How Do They Work?
SPACs raise money through an initial public offering that sells shares and warrants in a bundled unit usually at $10. SPACs usually have 24 months to identify and complete an acquisition. If investors of the SPAC dislike a planned purchase, they get to sell their shares but keep the warrants. That gives them the possibility of an upside even in transactions they opt out of, if a merger goes better than they expected. That combination is seen as making SPACs a safe bet especially during turbulent markets. Once the business combination is completed, the acquisition target becomes a public company.
3. Are SPACs New?
The first recorded listing of a blank-check company dated back to 1993, according to Bloomberg’s data. SPACs used to be regarded as a last resort — if a company couldn’t go public via a regular IPO or attract takeover interest from financial or strategic investors, SPACs gave an alternative.
4. How Big Are They?
Prior to the boom that began in late 2019, the previous record was set in 2007 during the financial crisis when $6 billion was raised, a fraction of the $31.6 billion raised in the first eight months of 2020. After the financial crisis, investing in an IPO that had no operations made less sense and SPACs largely disappeared.
5. Why Were They Revived?
For the sponsors creating SPACs, the approach offers faster turnaround for their money than traditional private equity funds, which often operate on a 10-year timeframe. As more high profile, seasoned investors moved into the sector, the sight of billionaires raising SPAC money gave the format some charisma that lured others. Bulge bracket banks have also formalized their SPAC business.
6. Why Are They Hot Now?
The pandemic has raised volatility levels, making IPOs riskier and bringing that market to something of a crawl. At the same time, the U.S. Federal Reserve had pumped extra cash into the market. Its actions also lowered yields, meaning SPACs offered the prospect of better returns that came with some downside protection, thanks to the right of redemption. And the new attention came as venture capital and private equity funds that had pumped money into private companies for a decade were looking for an exit — preferably not an IPO.
7. What Kind Of Deals Are Happening?
Online sports betting company DraftKings Inc. became a public stock in April after completing a merger with Diamond Eagle Acquisition Corp. in a $3.3 billion deal. As is customary in such “reverse mergers,” the SPAC took the name of the business it bought. When the stock price popped from around $10 a share for Diamond Eagle before it announced the deal in December to a peak of $43 in June as DraftKings, it helped add to the buzz around blank check deals.
8. What’s The Advantage?
For companies seeking a path to public markets, a reverse-merger with a SPAC has increasingly become an enticing alternative relative to the traditional route of conducting an IPO. SPACs have recently attracted more companies in futuristic industries such as space tourism and electric vehicles. These companies that have yet to make a profit could market their future financial prowess in a SPAC listing — something that’s not allowed in an IPO. One perceived advantage of going public with a SPAC is a shorter timeline to listing relative to a regular IPO. A SPAC merger may also be considered appealing to companies, because it is a privately negotiated acquisition with a set price. And once a deal is formally inked, the path to public markets is set, meaning a bout of market turmoil is less likely to derail things.
9. What Do Critics Say?
For one thing, that SPACs don’t offer the cheapest deal. Associated fees in going public via SPACs can make them effectively, more expensive. Although companies don’t pay the usual 5% to 7% IPO fee to investment banks, the cost of capital of a SPAC deal could end up costing more. And SPACs aren’t always faster than a traditional IPO — the U.S. Securities and Exchange Commissions has similar requirements for IPOs and SPAC listings.
10. What’s The Appeal For Sponsors And Investors?
Sponsors of the SPAC buy so-called founder’s shares and warrants. In many cases, founder’s shares can equal 20% of total shares outstanding of the resulting company after a merger. Investors find SPACs compelling because of the limited downside and yield. The capital raised in a SPAC IPO stays in a trust and is often invested in short-term U.S. Treasuries until a merger with the targeted company, so an investor can redeem common shares for their principal investment plus accrued interest. If a SPAC fails to identify and close an acquisition over a specific time period, the cash is returned to investors. Some also treat SPACs like closed-end funds, buying shares when they trade below the value of the cash held in the trust, usually $10 per share, and selling them at a higher price, usually when news or an announcement of a deal pushes shares up.
11. How Do The Warrants Work?
Early investors in SPACs buy units, which are usually comprised of one share of common stock and a fraction of a warrant to purchase more stock at a later date. Warrants are considered a sweetener, providing investors with the possibility of additional compensation for their cash, though, they expire worthless if a SPAC fails to close an acquisition. If an acquisition is completed, warrant holders can buy more shares by turning in their warrants and typically putting up $11.50 per share at some point in the future, an enticing proposition for those who believe that shares of the resulting company from a SPAC merger will rise substantially after going public. However, when those warrants are exercisable, they can have a negative impact on the common shares, as early investors sell.
12. Are SPACs Good For Retail Investors?
Business combinations that result from a reverse merger with a SPAC run the gamut from mature companies years in operation to upstarts that have no sales or product to show. They should be treated, as with all investments, on a case-by-case basis. SPACs are also somewhat of a blind investment in that investors who buy into a SPAC is taking a certain leap of faith in the sponsor’s ability to identify and close a deal with a fundamentally sound company with growth potential. SPACs aren’t riskless, though — particularly if you buy after a deal is announced and the stock has soared above $10. And once a deal is finalized, the shares can fall below that price as easily as any other stock’s. Of the 18 companies that went public via SPAC mergers in the past year, 11 are trading for less than $10 a share. SPACs are partly a bet on the skills of the sponsors who lead the companies while hunting for a target—often money managers or well-known executives.
13. Are SPACs Going To Take Over This Space?
Maybe Not: In late August, four software companies announced plans for traditional IPOs, as did AirBnB Inc., and another, Asana Inc., said it would do a direct listing — that is, go public by making existing private shares available to trade on exchanges rather than selling new shares. Palantir Technologies Inc. filed for a direct listing the next day.
Austin Russell, the 25-year-old founder and chief executive officer of Luminar Technologies Inc., is set to become one of the youngest self-made billionaires.
Russell will hold 104.7 million shares of Luminar after it goes public, a roughly 35% stake that’s worth about $1.1 billion at the company’s current valuation, according to a proxy statement filed Monday.
The Stanford University dropout is also expected to hold about 83% of the voting power at the driverless-car startup following its combination with special purpose acquisition company Gores Metropoulos Inc. That will give him control over the election of board members and all other major decisions submitted to stockholders for approval.
Russell founded Luminar in 2012. The Orlando-based company makes light detection and ranging sensors, or lidar, that bounce lasers off objects to guide vehicles. The sensors are expensive, and Luminar has emerged from a crowded start-up field in part by bringing down the cost.
Luminar’s backers include Peter Thiel, who awarded a then-17-year-old Russell a fellowship to help start the firm, and GoPro Inc. founder Nick Woodman. The company has a partnership with a unit of Volvo Car AB, which says it will begin using Luminar’s technology to enable hands-free highway driving beginning in 2022.
Russell isn’t the only young entrepreneur to hit billionaire status through a special purpose acquisition company, or SPAC, merger this year. Thomas Healy, who was 28 when his Texas-based truck electrification startup Hyliion Inc. went public this month, also accomplished the feat.
Such deals have proliferated in recent weeks, with more than $52 billion raised by 136 blank-check firms that have gone public this year on U.S. exchanges. SPACs are now getting scrutiny from the U.S. Securities and Exchange Commission, which wants to ensure investors are receiving appropriate disclosures about insiders’ pay structures.
Luminar will be traded on the Nasdaq under the ticker LAZR after its combination with Gores Metropoulos, which is expected to be completed in the fourth quarter. The company didn’t immediately respond to an email requesting comment.
Serial Dealmaker And Master Of Payouts Shows Why SPACs Appeal
Few on Wall Street can do more with a blank check than Bill Foley.
At 75, he’s the poster child for one of the biggest financial plays of the moment: the special purpose acquisition company, or SPAC.
Las Vegas NHL Team Owner Bill Foley Announces General Manager
Over the past four decades the former U.S. Air Force captain has made a fortune buying, selling and splitting public companies to lucrative effect. Now Foley is again seeking to capitalize on the vehicles in what is shaping up to be a heady year for SPACs, also known as blank-check companies.
Skeptics warn Wall Street may be getting carried away. SPACs — essentially shell companies in search of real businesses seeking a short-cut to going public — are designed to enrich their founders. But investors who buy in don’t always fare well. Opaque disclosures can be one risk. Potential conflicts of interest another.
A Miami pension fund is suing Foley, claiming he operates a “veritable spider’s web” of inter-related corporate entities including SPACs. A representative for Foley described the complaint as “wholly without merit.”
Foley, for his part, is pressing ahead and sees plenty of potential target companies keen to engage.
“SPACs have changed from being kind of the place of last resort when you had a company you wanted to sell and take public to almost a first choice,” Foley said an interview. “Which is terrific.”
It certainly is for Foley, who recently raised two huge ones. Foley Trasimene Acquisition Corp. is looking for deals in financial technology or business process outsourcing armed with $1.03 billion from its May initial public offering. The company could make purchases in the $2.5 billion to $3.5 billion range, he said.
Foley Trasimene Acquisition Corp. II, which has $1.65 billion in committed capital, is hunting acquisitions in the same fields as well as information services, but with bigger sights. Foley said the SPAC is eyeing transactions in the $6 billion to $10 billion range.
A third SPAC, Foley-backed Trebia Acquisition Corp., raised $517.5 million in June.
Foley prides himself on having operating experience. Beginning with a title insurance business he bought in 1984, he’s led more than 100 acquisitions, dozens of sales and spinoffs and at least seven public offerings following what his biography describes as his “value creation playbook.”
What differentiates him from other SPACs, he said, is that any company that sells to him will get access to a host of seasoned financial managers. Foley said he has a team of six people working to find targets.
“My whole history and career has been around acquiring companies and fixing companies,” he said.
A zest for acquisitions and a talent for corporate maneuvering is an ideal resume for partaking in the SPAC craze. More than $52 billion has been raised by 136 blank-check firms that have gone public this year on U.S. exchanges. That’s about 50% more than the total raised in all previous years combined.
The potential upside for Foley as a founder is substantial. In exchange for fronting a portion of the SPAC’s setup costs, founders receive the right to get an equity stake in whatever company the SPAC merges with as an incentive to close a deal.
The stake is usually set at 20%, though it can be diluted in negotiations. In the case of Foley and his partners, they paid $9 million to $30 million for each SPAC, depending on its size.
It’s worked out well for Foley before. In 2016, he raised a $600 million SPAC with former Blackstone Group Inc. dealmaker Chinh Chu. The vehicle teamed with Blackstone to buy Des Moines, Iowa-based insurer Fidelity & Guaranty Life for $1.84 billion.
Foley’s investment of $26.8 million for founder shares and warrants gave him about a 6.5% equity stake, excluding warrants, according to the merged company’s offering documents.
The dealmaking didn’t end there. Two years later, FGL, whose shares had seldom advanced beyond the $10 listing price, decided to sell itself for $12.50 a share to Fidelity National Financial Inc., the title insurance company built up by Foley.
His net proceeds at the time the deal closed in June were about $138 million, according to Bloomberg calculations. Foley said he couldn’t recall the exact amount, but “it was lucrative, there’s no question about it.”
SPACs are a natural application of a dealmaking style that’s helped Foley amass a $1.4 billion fortune, according to the Bloomberg Billionaires Index. His empire of companies, representing $42 billion in combined market value, encompasses close to a dozen industries from restaurants to software.
Foley has even applied his playbook to investments in wine and hockey, two of his passions. He’s co-owner of the Vegas Golden Knights of the National Hockey League and his Foley Family Wines is among the largest vineyard owners in California’s Sonoma County. He is also majority owner of Whitefish Mountain ski resort in Montana.
While Foley has become wealthy through the equity stakes he’s accumulated, part of his fortune has come from bonuses received as a result of spinoffs and mergers. He was the fourth-highest paid U.S. executive in 2014, thanks to a $42.7 million payout that was mostly tied to organizing pieces of Fidelity National Financial’s business into a subsidiary.
A surfeit of SPACs heightens the risk of dealmaking with potential conflicts of interest, according to lawyers.
Sometimes dealmakers find themselves on both sides of a transaction, such as when SPAC manager Chamath Palihapitiya’s Social Capital III agreed this month to merge with Clover Health, an insurance startup in which Palihapitiya’s previous venture capital firm, Social Capital, was a small investor, according to PitchBook.
In other instances, SPAC founders can pocket additional fees from giving deal advice on their own deals.
Michael Klein’s boutique investment bank received a fee in the form of shares when his Churchill Capital III SPAC merged with MultiPlan Inc. Klein and the SPAC are now being sued by an investor for, among other things, failing to reveal conflicts of interest.
A representative for Klein declined to comment, as did one for Social Capital.
Conflicts could arise “in any kind of transaction where there are people with a substantial vested interest in the outcome,” said Alan Seem, a partner at Jones Day. That’s particularly true for SPACs. When sponsors identify a target to buy, they have an incentive to get the deal approved by the SPAC shareholders.
If it doesn’t go through, sponsors don’t get their equity payout and lose the money they put up to start the SPAC.
“That could lead to the sponsors overselling the merits of the deal to try to get it across the finish line,” Seem said.
Conflicts of interest have to be disclosed to investors and many SPACs state in listing documents that they’re allowed to pursue mergers with companies with which their management is already involved.
U.S. Securities and Exchange Commission Chairman Jay Clayton said last month the agency is examining how SPACs disclose the financial incentives for executives to ensure they’re clearly spelled out.
The somewhat circular nature of Foley’s first SPAC deal underscores the benefits of having a network to help execute a profitable deal. Not only was Foley a founding sponsor, he was also a major shareholder in Fidelity National Financial, which helped finance the SPAC deal and ultimately acquired the resulting business.
That deal sparked the Miami pension fund’s lawsuit against Foley and his fellow board members, accusing Foley of enriching himself by merging these companies without taking shareholders into account.
Fidelity National Financial said in a statement that the complaint is without merit and “a gross distortion of the company’s track record under its chairman and a highly talented, independent and experienced board of directors.”
Foley said the FGL deal was negotiated by two independent boards and had a Chinese wall. Foley said that while he’s hired people who used to work for him in other businesses, his companies “try to be very conscious of any kinds of conflict of interest.”
Still, his style of dealmaking has been used against him. Data provider CoreLogic Inc., is trying to fend off an unsolicited takeover and board fight from Foley’s Cannae Holdings and activist investor Senator Investment Group.
The company has used the notion of “The Foley Network” in its defense ahead of a shareholder vote next month, arguing the intermingling of his various business interests could create a conflict.
Cannae said in a statement that neither it nor Senator have “a single overlapping business with CoreLogic,” and that any overlapping director issues can be easily remedied.
Foley is weighing a fourth SPAC but says his investors will first want to see a positive outcome with the current three. He said he’s also wary of the proliferating number of entrants in the SPAC market, not all of which he considers high quality.
“Anytime you have a run on something, there’s going to be some fallout.”
SPACs Could Be a Bubble That Never Quite Pops
Though they benefit from speculative froth, blank-check companies aren’t only a good deal for their sponsors.
Sorry, haters: The SPAC could be here to stay.
What seems like today’s hottest path to a public listing comes with a lot of baggage. The basic premise of a Special Purpose Acquisition Company is that a sponsor raises money in a public offering with the expectation that it will identify a target company for a merger or an acquisition within a specified period of time.
As of the market close on Oct. 16, there have been 143 SPAC IPO transactions this year, according to SPACInsider, an online subscription database that tracks SPAC performance. There were 13 in all of 2016.
Many believe the meteoric rise in an asset class that basically involves handing over money in something of a blind-faith investment speaks more to the current frothy investing environment than the value proposition of a SPAC itself. With interest rates close to zero and expected to remain that way for the next few years, investors increasingly are swinging for the fences in the equity market.
And with both holding periods and attention spans getting shorter, the SPAC is the ultimate form of immediate gratification. It enables investors to play a new trend—sports betting or automated house flipping, for example—the second it catches fire in the market without waiting for a young company to first demonstrate a breakout year.
But it isn’t all about fools rushing in. A lesser-known feature of today’s SPACs is that investors can opt out, redeeming their shares plus interest around a shareholder vote on a proposed target. Investors in normal public companies inking a deal would love the ability to jump ship relatively unscathed before what could be a disastrous deal.
Not that this year has been a good one to bail out: The annualized rate of return across all SPACs in 2020 thus far is 35%, according to SPACInsider, significantly higher than the S&P 500’s 9% return year to date.
Companies like SPACs because they allow them to bypass a lengthy review process and a prolonged investor roadshow. Even better, they can solidify a valuation and an outcome before a deal is announced to the public market. That certainty will always be attractive for some companies, even in less turbulent times, says Carlos Alvarez, who leads SPAC-related banking at UBS.
Real-estate technology company Opendoor went public via a SPAC merger last month, citing speed to market and the ability to capitalize on healthy housing trends amid Covid-19 as deciding factors, according to a person familiar with the matter.
Shares of venture capitalist Chamath Palihapitiya’s Social Capital Hedosophia Holdings Corp. II are up more than 75% since the SPAC announced Opendoor as its target.
Of course SPACS are no free lunch. In a hot market, there is a significant opportunity cost of tying capital up for a lengthy period of time. And most SPAC sponsors are highly motivated to pull the trigger since they traditionally have been paid based on any deal they execute, not just a winning one.
Their rewards are far better when ordinary investors do well, too, of course—or at least see early stock-market gains. But investors have often done poorly when hanging on. Renaissance Capital says that as of late September only 31.1% of the 313 SPAC IPOs since 2015 had positive returns, sharply lagging traditional IPOs over that period. Their performance is often worse after a merger has closed.
Some of those risks are changing, though. Whereas SPAC investors used to have to vote against a deal in order to redeem their shares, the right to redeem shares is now independent of a shareholder vote, giving investors more freedom and enabling more deals to go through.
Moreover, sponsors such as hedge-fund manager Bill Ackman are moving away from guaranteed fees, opting for warrants exercisable based on performance. And top-tier banks such as Goldman Sachs now underwrite SPAC deals. SPACs also fill a vacuum: Thanks in part to the growth in private equity over the past several years, there are significantly fewer public companies today than 20 years ago.
SPACs are seeing a golden era that will fade as speculative appetite does, but they are unlikely to fade away entirely—they are too useful to everyone involved.
Supply-Chain Tech Firm E2open To Go Public In SPAC Deal
The software provider is capping an acquisition spree with a reverse-merger agreement, bypassing traditional IPO process.
Supply-chain software provider E2open LLC plans to go public through an agreement with a blank-check company, making it the latest in a stream of companies bypassing the traditional path to a Wall Street listing.
Austin, Texas-based E2open is set to merge with CC Neuberger Principal Holdings I, a special-purpose acquisition company, or SPAC, in a deal that would value the company at about $2.57 billion, the companies said Wednesday. The transaction is expected to close in the fourth quarter, with the company to be listed on the New York Stock Exchange under the symbol ETWO.
CC Neuberger is led by senior professionals of private-equity firm CC Capital Partners LLC and asset manager Neuberger Berman Group LLC, and completed its initial public offering in April.
E2open’s current majority investor, private-equity and venture-capital firm Insight Partners, whose legal name is Insight Venture Management LLC, took the cloud-based software company private in 2015 after buying it for $273 million. The company has since grown through a series of acquisitions, and its customers include Procter & Gamble Co. , Cisco Systems Inc. and Microsoft Corp.
E2open’s network-based technology funnels information from varied operations into a central platform and synchronizes the data “like a giant decoder ring” to make it “all usable by software applications,” Chief Executive Michael Farlekas said. “We orchestrate end-to-end supply chain for the world’s largest companies.”
The coronavirus pandemic has raised interest in such visibility, Mr. Farlekas said, as the push to make supply chains more resilient with strategies such as adding more suppliers in different locations has made sourcing and distribution operations more complicated.
The deal with CC Neuberger will give E2open access to capital as the company seeks to take advantage of increased interest in supply-chain software, Mr. Farlekas said.
E2open is going public through a process that has grown increasingly popular this year as a way of bypassing the traditional process for initial public offerings.
Such blank-check mergers have exploded since the coronavirus pandemic rattled traditional markets for initial public offerings. A SPAC turns the traditional IPO model on its head by going public as a shell business and raising cash for the sole purpose of acquiring a business. The acquired firm then takes over the spot on the exchange once the deal is complete.
Companies that have turned to the strategy include electric-car maker Fisker Inc. and sports fantasy and betting platform DraftKings Inc. Electric-truck business Nikola Corp. went public in June through a merger with VectoIQ Acquisition Corp.
E2open is going public after a buying spree that extended its core supply-chain management technology to include transportation and trade technology. The acquisitions included container shipping booking platform Inttra in 2018 and the $425 million purchase of trade management software company Amber Road, then a publicly traded company, in 2019.
Blank-Check Company Deals Driven by Speculation, Chanos Says
The surge in blank-check company deals is a sign of unfettered speculation and investors may see lackluster returns from these offerings, legendary short-seller Jim Chanos said.
“We are going to blow through the records of 1999 and 2000 in terms of new issuance,” Chanos said at Grant’s Interest Rate Observer’s fall conference on Tuesday. “We are now seeing speculation in all its glory come back.”
Chanos, the founder of hedge fund Kynikos Associates Ltd., said “academic work has showed us that the return of special purpose acquisition companies is not only bad relative to the stock market, it’s even worse than initial public offerings. That hasn’t stopped people from getting excited and throwing money.”
More than $52 billion has been raised by 136 blank-check firms that have gone public this year on U.S. exchanges. That’s about 50% more than the total raised in all previous years combined.
Chanos was also critical of companies that, he says, are increasingly defining themselves not by revenue or earnings, but by the total addressable market they can win.
The idea is “how big is what you’re chasing, forgetting for a second that everybody else is chasing those same markets,” Chanos said at the event, which took place online and in-person at the Jacob K. Javits Center in New York City.
An example is Netflix Inc., which has said their total market “is all the people on the planet,” said Chanos, who has shorted the stock in the past. Shares of the streaming service are up 62% since Jan. 1.
Chanos ended the talk by saying he would “go long any of the space companies that have gone public because we know that space is infinite. There’s no price too high to pay.”
His remarks sent shares of Virgin Galactic Holdings Inc. up 7% before paring gains after Chanos said he was just joking.
Outgoing UBS Chief Sergio Ermotti Joins In Blank-Check Boom
The booming club of special purpose acquisition companies just recruited a new, prominent member.
Sergio Ermotti, the outgoing chief executive officer of UBS Group AG, has agreed to serve as chairman of Investindustrial Acquisition Corp., a blank-check company, according to a revised prospectus filed Tuesday. Investindustrial filed with the U.S. Securities and Exchange Commission to raise $350 million in a New York Stock Exchange listing.
Ermotti, who led the Swiss bank since 2011, will start serving as chairman of the SPAC on Jan. 1, the prospectus shows. His tenure at UBS is scheduled to end next month when Ralph Hamers takes over.
Prominent investors, buyout shops, politicians and celebrities have joined the SPAC game this year resulting in bigger IPOs and acquisitions. Michael Klein, formerly a top rainmaker at Citigroup Inc., is pursuing his fifth blank-check company while billionaire investor Bill Ackman scored the biggest ever SPAC listing in July with a $4 billion offering.
Investindustrial plans to focus on finding targets in consumer, health-care, industrial and technology sectors that have an enterprise value of $1 billion to $5 billion, the filing shows.
The company’s directors include Michael Karangelen, a former managing director at TowerBrook Capital Partners, Harvard Business School professor Dante Roscini and Tensie Whelan, director of the New York University Stern School of Business’s Center for Sustainable Business.
Deutsche Bank AG and Goldman Sachs Group Inc. are advising Investindustrial on the listing. The company plans to list its units, consisting of one Class A share and one-third of a warrant, under the symbol IIAC.U.
Muddy Waters Takes On Michael Klein, And SPACs
The ex-Citi rainmaker’s influential circle of investors and advisors can’t be happy about the short seller’s attack on MultiPlan.
Carson Block of Muddy Waters Capital LLC made his name as a short seller targeting obscure Chinese companies. His latest critical report locks horns with some of the cream of the U.S. financial and business establishment, while taking aim at their beloved new fad: the special purpose acquisition company, or SPAC.
This is shaping up to be quite the fight.
Block launched a short attack this week on MultiPlan Corp. The U.S. health-insurance data analytics company went public last month after merging with Churchill Capital Corp. III, one of former Citigroup rainmaker Michael Klein’s four listed SPACs.
It’s not clear whether Block will win the argument that MultiPlan’s shares and debt are significantly overvalued. His assertion that SPAC sponsors extract excessive fees is worth a hearing, though.
The Churchill deal valued MultiPlan at $11 billion, including its borrowings, and was one of the largest ever involving a SPAC. MultiPlan’s previous owner, private equity firm Hellman & Friedman, has kept a big stake in the business. H&F was just the latest in a string of private equity firms to own the company.
Block contends that MultiPlan’s business has been in decline for several years and could be about to lose its biggest health-insurer client, UnitedHealth Group Inc., which accounts for 35% of its revenues. UnitedHealth is developing a similar analytics tool in-house.
“In the great present-day money grab known as SPAC promotion, egregious mistakes will be made,” Block wrote in his typical take-no-prisoners style. “A business model that incentivizes promoters to do something — anything — with other people’s money is bound to lead to significant value destruction on occasion.”
MultiPlan delivered a long rebuttal of Block’s claims on a Thursday investor call, arguing that its UnitedHealth relationship is expanding and that the latter’s Naviguard health-care analytics product is no substitute for MultiPlan’s. It also denied using creative accounting to conceal deteriorating performance. Its shares didn’t recover, however, extending their decline this week to 28%.
SPACs have raised about $60 billion in North America this year but investors have become more circumspect lately about companies that go public this way. The IPOX SPAC index, a benchmark for this type of equity finance, has declined 12% since a September peak.
I’ve written before about how the pressure for SPACs to deploy investors’ money, plus the competition among SPACs to strike deals, could lead to poor returns. Coming soon after the short-seller takedown of another SPAC-backed company, hydrogen truck group Nikola Corp., it’s no wonder MultiPlan investors have been unsettled.
In fairness, MultiPlan is (unlike Nikola) a long-established business, with almost $1 billion in annual revenue — although its sales have declined since 2017.
Klein has raised more than $4 billion from investors for his various SPACs, putting him in the upper echelons of SPAC sponsors. Tech billionaire Michael Dell and Saudi Arabia’s wealth fund have invested in the MultiPlan transaction, according to the prospectus, while Laurene Powell Jobs, the widow of Apple Inc. founder Steve Jobs, is a partner of the Churchill sponsor via her venture capital and philanthropic organization, Emerson Collective.
Klein is in the process of raising a fifth SPAC and has formed a high-caliber brain trust, called Archimedes Advisors, to consult with and help source deal opportunities. Among these advisors are Jony Ive, Apple’s ex-chief designer, and Alan Mulally, former chief executive officer of Ford Motor Co. They both have a financial interest in the success of the SPACs, according to a disclosure.
Those involved in Klein’s first SPAC, which acquired scientific-data company Clarivate Analytics in 2019, have almost trebled their money (not including any return from share warrants). In contrast, MultiPlan’s shares are now more than 35% below the price at which Klein’s third SPAC purchased them.
It would be surprising if Klein had failed to do sufficient diligence on MultiPlan, as Block alleges, because he’s known the company for years. Klein advised Warren Buffett’s Berkshire Hathaway on a potential bid for MultiPlan several years back, he told investors recently (Buffett didn’t bite).
This time around, Klein’s former employer Citi helped advise on the MultiPlan deal, along with Klein’s own boutique investment firm, M. Klein & Company. His advisory firm was paid about $30 million for advising on the transaction, about half of which was paid in MultiPlan stock (and is subject to vesting conditions) and another $8 million was donated to charity, according to the prospectus.
The SPAC sponsors — Klein’s firm, various financial partners and the brain trust — received 27.5 million MultiPlan shares, worth $172 million at current prices, effectively for free. Their total holdings could almost double if warrants to purchase further stock become exercisable.
At least Klein is subject to a performance hurdle on his one-third portion of the founder shares, as well as a chunk of the share warrants. They’ll only vest if the stock rises above $12.50 for 40 trading days during the next four years. Currently the stock is at about half that level, so he’s got work to do. The sponsor shares are also locked up until 2022.
At this stage, MultiPlan’s stock-market performance is probably more of a worry than the investors’ potential rewards. A comprehensive rebuttal to Block from Klein, who’s a MultiPlan director but didn’t take part in the investor call, would be a good place to start making amends to his powerful friends.
Klein told an investor call he’d spoken to executives representing 65% of Multiplan’s revenue base who told him Multiplan was critical to their operations.
Luminar Technologies More Than Doubles Post SPAC Merger
Peter Thiel-backed Luminar Technologies Inc. briefly touched an all-time high within days of emerging as a standalone company as investor excitement over developers of laser-sensors that enable autonomous driving (lidar) ramped up.
Shares of Luminar more than doubled since it completed its reverse merger with special purpose acquisition company Gores Metropoulos last week, trading above $38 Monday afternoon. Luminar warrants also hit a high, rising more than 200% over the same time, to more than $15.
Velodyne Lidar jumped 16.5% Monday on mre than 2.5x average daily, three-month volume.
Meanwhile, SPACs are bringing more lidar plays to market. Bruce Linton’s SPAC Collective Growth Corp. is said to be in talks with Innoviz, as Bloomberg first reported last week. And InterPrivate Acquisition Corp. tapped Mountain View, California-based lidar company Aeva in early November. Both SPACs also gained on Monday.
Lidar Startup Innoviz To Go Public In $1.4 Billion SPAC Deal
Innoviz Technologies Ltd., an Israeli lidar startup backed by two of the world’s largest automotive suppliers, is going public in a $1.4 billion reverse merger with Collective Growth Corp.
The SPAC provided $150 million in cash and raised $200 million from investors in the deal that gives the combined company a $1.4 billion equity value. They expect the transaction to close in the first quarter of next year.
Merging with a SPAC — shorthand for special purpose acquisition company — has become an increasingly popular method for closely held businesses to raise capital for growth. Innoviz is the fourth lidar-focused firm to go public through a blank-check company this year.
Lidar, laser-based sensors that allow a vehicle to “see” its surroundings, are among the most expensive components of autonomous cars and are key to enabling more advanced self-driving features. With the promise of fully autonomous robotaxis still years away, lidar companies are targeting more-limited features in passenger cars and products including industrial robots and consumer devices.
“The industry will take more time, and now that we have this funding, this gives us the reassurance that we can complete what we started,” Innoviz Chief Executive Officer Omer Keilaf said by phone.
The company counts global auto suppliers Magna International Inc. and Aptiv Plc as investors and will provide lidar for BMW AG’s iX sport-utility vehicle due in 2021. BMW will gradually introduce so-called Level 3 autonomy in the SUV, meaning drivers will be able to take their hands off the wheel and eyes off the road in limited circumstances. Keilaf declined to comment on any other supplier agreements.
Luminar Technologies Inc., another lidar company, recently went public through a merger with Gores Metropoulos Inc., turning its 25-year-old founder into one of the world’s youngest billionaires. Velodyne Lidar Inc. went public via reverse merger with Graf Industrial Corp. this summer, and Aeva last month agreed to merge with InterPrivate Acquisition Corp.
Collective Growth, the Austin, Texas-based special purpose acquisition company merging with Innoviz, is led by Chief Executive Officer Bruce Linton, who is known for co-founding Canopy Growth Corp., a cannabis producer. Collective Growth raised $150 million in April and said at the time it would focus on target businesses in any industry or geography.
Engie’s EVBox To Go Public In $1.4 Billion SPAC Deal
TPG Pace Beneficial Finance Corp., a special purpose acquisition company, agreed to acquire EV Charged BV, a unit of French utility Engie SA that specializes in electric-vehicle charging technology.
The deal will create a combined entity, EVBox Group, with a valuation of about $1.4 billion, the companies said Thursday. It will give EV Charged, which does business as EVBox, an implied enterprise value of $969 million. Engie, which acquired EVBox in 2017, will retain a stake of more than 40%.
Founded in 2010, Amsterdam-based EVBox makes hardware and software, and operates a network of more than 190,000 charge ports in 70 countries. The transaction with Fort Worth, Texas-based TPG Pace is set to provide the company with the means to broaden its technology offerings and expand globally. TPG Pace surged 160% in premarket trading Friday.
“We’ve built out a dominant pan-European position and are convinced that joining forces with a strong American shareholder will help us accelerate our growth in North America,” Kristof Vereenooghe, president and chief executive officer of EVBox, said in an interview.
EVBox has developed products approved for utility rebate programs in U.S. states including California and New York, Vereenooghe said. In February, the company announced it had leased a production facility in Libertyville, Illinois.
“We’re expecting explosive growth in electric vehicles and are excited about the impact EVBox can have in reducing carbon emissions,” said Karl Peterson, a TPG senior partner who oversees TPG Pace Group, the private equity firm’s SPAC effort.
The combined entity is expected to have about $425 million in cash on hand, in part from a $225 million private investment in public equity, or PIPE, raised from investors including Wellington Management, funds managed by BlackRock Inc. and Neuberger Berman, as well as Inclusive Capital Partners.
TPG Pace raised $350 million in an October initial public offering, with a goal of acquiring a target with strong environmental, social and governance practices.
Other companies that make or provide technology for electric vehicles have turned to SPACs for fresh capital. ChargePoint, Fisker Inc., Nikola Corp., Arrival and Velodyne Lidar Inc. are among those that have struck deals to go public through blank-check firms.
College Dropout Makes Market Debut With Tiny Tech SPAC
Andrew Wilkinson didn’t even know what a family office was until people started using it in reference to Tiny Capital, his tech-focused holding group.
A college dropout from Vancouver, British Columbia, Wilkinson, 34, wasn’t steeped in the ways of the ultra-wealthy when he started Tiny five years ago. The self-taught web designer founded an agency soon after high school that grew rapidly building interfaces for Silicon Valley clients such as Pinterest Inc.
“I was operating at very high margins and my bank balance kept getting bigger,” Wilkinson said. “I didn’t really know what to do with the money and all I knew how to do was start businesses.”
So that’s what he did, concentrating initially on software that serviced the budding online retail industry. Today his empire comprises 30 companies with a combined value he estimates at C$600 million ($471 million) to C$1 billion.
Though he said his general strategy is to hold the businesses for the long term, the ease of listing through a special-purpose acquisition company, or SPAC — what he calls “the least painful way to go public” — proved too tempting.
On Monday, his company WeCommerce Holdings Ltd., which creates and invests in companies servicing Shopify Inc.’s retail platform, will list its stock on the TSX Venture Exchange. It’ll be done through a reverse takeover of Brachium Capital Corp. after closing a private placement offering for C$60 million, co-led by Canaccord Genuity Corp. and TD Securities Inc.
Bill Ackman, who Wilkinson met when he won a charity lunch auction with the billionaire, is an investor in WeCommerce alongside a Tiny-owned entity that’s 80% owned by Wilkinson with his partner, Chris Sparling, holding the balance, according to filings. Tiny makes up virtually all of Wilkinson’s net worth aside from some real estate and stocks, he said.
While the pair founded WeCommerce, the majority of Tiny’s businesses, including design talent platform Dribble and Girlboss Media Inc., were acquired. Wilkinson envisions the firm as a kind of Berkshire Hathaway Inc. of small tech companies.
He became a disciple of Berkshire’s Warren Buffett after experiencing burnout trying to run five businesses simultaneously in 2014.
“It just kind of blew my mind that you could have someone who’s one of the wealthiest people in the world and all he does is hire CEOs, incentivize them and let them do their thing,” Wilkinson said.
Like Buffett, he strives to complete deals quickly, in under 30 days. He promises founders long-term, hands-off ownership by a like-minded entrepreneur. He and Sparling had been courted by private equity in the past and loathed the process.
“They were always these Wall Street” MBAs that we didn’t relate to, he said. “They looked at our business like a spreadsheet.”
To be sure, Tiny isn’t all that dissimilar from private equity. The firm is intent on owning profitable businesses, with earnings being the ultimate engine of future acquisitions.
And a large part of Wilkinson’s role is installing CEOs who he says he leaves alone to manage the company how they see fit. The key difference is Tiny isn’t looking to exit within a short time span and their growth demands are lower.
This year’s frothy tech valuations have made acquisitions harder, he said. Tiny looks at 50 to 100 companies a month and on average buys three to five a year.
They often compete with venture capital and private equity firms where their edge is their founder-friendly, buy-and-hold ethos and all-cash offers. And generally valuations are more straightforward in the relatively vanilla area of tech they focus on.
“I always joke we’re like the auto dealerships and dry cleaners of the internet,” Wilkinson said. “They’re not doing some crazy futuristic stuff. They’re just helping people connect.”
Thiel-Backed Bridgetown SPAC Weighs Up To $10 Billion Tokopedia Deal
Bridgetown Holdings Ltd., the blank-check company backed by billionaires Richard Li and Peter Thiel, is considering a potential merger with Indonesia’s e-commerce giant PT Tokopedia, according to people with knowledge of the matter.
The special purpose acquisition company is exploring the structure and feasibility of a deal with Tokopedia, one of the most valuable startups in the southeast Asian nation, the people said. The SoftBank Group Corp.-backed firm could be valued at $8 billion to $10 billion in a transaction, said the people, who asked not to be identified as the discussions are private.
Deliberations are at a preliminary stage and Bridgetown could still look at other potential targets, the people said. Hong Kong tycoon Li, whose investment firm Pacific Century Group also owns companies including insurer FWD Group Ltd., is already a minority investor in Tokopedia, the people said. Representatives for Bridgetown and Tokopedia declined to comment.
Bridgetown surged 30% in premarket trading on Tuesday.
Bridgetown raised $550 million in a U.S. initial public offering in October, following other so-called blank-check companies such as those associated with billionaire investor Bill Ackman and former U.S. House Speaker Paul Ryan.
Merging with a SPAC has become an increasingly popular method for closely held businesses to raise capital for growth. A potential merger with Tokopedia would also be in-line with the strategy that Bridgetown set out in its prospectus: to focus on a target in the technology, financial services or media sectors in Southeast Asia.
Tokopedia became Indonesia’s second most valuable startup, just behind ride-hailing and delivery giant Gojek, by scoring early backing from SoftBank and Alibaba Group Holding Ltd. Alphabet Inc.’s Google and Temasek Holdings Pte invested about $350 million in Tokopedia, people familiar with the matter have said.
E-commerce platforms including Tokopedia, Alibaba’s Lazada Group and Shopee — a unit of Singapore-based Sea Ltd. — have been some of the beneficiaries of coronavirus-driven lockdowns this year as they moved quickly to serve the millions of people forced to make their first online purchases while staying home.
Owl Rock, Dyal Strike Deal To Combine And Go Public
Agreement through special-purpose acquisition company would value combined entity, Blue Owl, at $12.5 billion.
Owl Rock Capital Partners LP and Dyal Capital Partners agreed to merge in a complicated deal that would take them public through a blank-check company.
The new company, to be named Blue Owl, would combine one of the biggest owners of private-equity firm stakes with Owl Rock, a rapidly growing credit investor. It would be valued at about $12.5 billion.
The Wall Street Journal reported earlier this month that the firms were discussing such a deal.
The firms plan to go public through a merger with Altimar Acquisition Corp. , a special-purpose acquisition company sponsored by an affiliate of HPS Investment Partners LLC. The deal also includes additional funds of about $1.5 billion from institutional investors.
Blue Owl would be led by Owl Rock co-founder Doug Ostrover as chief executive.
SPAC mergers have exploded in popularity recently as an alternative to traditional initial public offerings. This deal, assuming shareholders approve it, would be one of the largest such transactions. It is the second-largest SPAC transaction announced in the U.S. this year, eclipsed only by a deal to take mortgage originator United Wholesale Mortgage public at a valuation of roughly $16 billion.
The deal is also one of a few instances of two companies merging with each other and a SPAC simultaneously. Sports-betting operator DraftKings Inc. merged with a gambling-technology provider as part of a deal that took it public through a SPAC earlier this year.
Dyal was founded in 2011 by Lehman Brothers veterans Michael Rees and Sean Ward and is the largest owner of minority stakes in private-equity firms, credit shops and hedge funds. It already owns stakes in both Owl Rock and HPS.
For its entire existence, Dyal has been a unit of Neuberger Berman Group LLC, the big, privately held investment firm. Neuberger would retain a stake in Blue Owl and hold a board seat.
Owl Rock was founded in 2016 by Mr. Ostrover, who co-founded GSO Capital Partners and later sold it to Blackstone Group ; former KKR & Co. partner Marc Lipschultz ; and former Goldman Sachs Group Inc. banker Craig Packer. It has shot up to $23.7 billion in assets, managed primarily through business-development companies.
The firm focuses on a fast-growing area known as direct lending, in which nonbanks make loans to midsize companies, many of them backed by private equity, and hold them on their books. Such lenders have been on the rise since the aftermath of the 2008-09 financial crisis, when banks shed many of their riskier businesses.
Perella Weinberg Partners LP, Goldman Sachs & Co. LLC and BofA Securities Inc. are financial advisers to Owl Rock. Ardea Partners LP is financial adviser to Neuberger Berman and Dyal; Evercore Group LLC is financial adviser to Dyal; and J.P. Morgan Securities LLC is financial adviser to Altimar. Citigroup and UBS are also advising Neuberger Berman.
Perella Weinberg Inks Deal With Betsy Cohen’s SPAC
Perella Weinberg Partners is finally going public.
The boutique investment bank, the subject of IPO speculation ever since its founding in 2006, agreed to combine with a blank-check company sponsored by finance entrepreneur Betsy Cohen. The deal with FinTech Acquisition Corp. IV, Cohen’s special purpose acquisition company, values the combined firm at about $975 million, according to a statement Wednesday.
“Coming out of Covid, we feel that we are entering a new, long-term period of expanded demand for expert, independent advice,” Cohen said on a conference call with analysts and investors. “In our view, PWP represents the most compelling investment opportunity to capitalize on this growth opportunity.”
Cohen’s SPAC emerged as the likely acquirer soon after Bloomberg reported in November that Perella Weinberg was in talks with blank-check suitors. The bank delayed an initial public offering last year after filing confidentially, people familiar with the matter said at the time. It had already taken steps to prepare for the IPO by naming Peter Weinberg chief executive officer and spinning off asset-management units.
Ever since Wall Street veterans Weinberg and Joe Perella founded the firm, investment bankers have speculated on when it might pursue an IPO to raise money for itself and owners. Its market debut is meant to open a fresh phase of growth, a move long anticipated by the industry. The firm has been elevating team members, expanding internationally and separating asset management to focus on dealmaking.
FinTech IV will fund the purchase with its $230 million of cash and raise an additional $125 million through a private placement, according to the statement. Perella Weinberg expects to have no debt when the transaction is completed, with access to additional liquidity under an untapped revolving credit facility.
“We are experiencing elevated demand for capital-raising and liability-management services,” Andrew Bednar, co-president of Perella Weinberg, said on the conference call. “At the same time, we are seeing a resurgence in M&A activity. We believe that dynamic will persist for the next few years as the high level of debt issuance earlier in 2020 sets up an extremely active refinancing calendar over the next several years.”
Perella Weinberg had $533 million in revenue last year, according to a presentation Wednesday. That compares with $718 million at PJT Partners Inc. and $747 million at Moelis & Co., both younger rivals. For 2020, Perella Weinberg estimated revenue of $485 million, a 9% decline from last year.
Blank-check companies are abounding, with almost 250 listing in the U.S. this year and raising roughly $80 billion for potential acquisitions, according to data compiled by Bloomberg. Many are chasing closely held firms reluctant to go public on their own in turbulent times.
Cohen, who founded Jefferson Bank and Bancorp Inc., a provider of technology solutions to non-bank financial companies, has been involved with several blank-check firms, all focused on targets in the fintech and tech sectors.
Shares of FinTech IV rose 5.1% to $11.40 at 12:11 p.m. in New York, paring an earlier gain of as much as 15%.
Investors including Fidelity Management & Research Co., Wellington Management and Korea Investment & Securities have agreed to buy stock in a private placement to support the Perella Weinberg deal. Net proceeds from the transaction will first go toward repaying debt, while as much as $110 million will be used to redeem a portion of ownership interests tendered by some Perella Weinberg holders, according to the statement.
Working partners and employees of the advisory firm are expected to hold about 50% of the company after the deal is completed, slated for the first half of 2021, after approval from FinTech IV stockholders and regulators.
Both of Perella Weinberg’s founders have long histories in finance. Weinberg was once CEO of Goldman Sachs Group Inc.’s European business, and worked at Morgan Stanley earlier in his career. His family had run Goldman for the better part of its existence, starting with his grandfather Sidney Weinberg beginning as a janitor in the early 1900s and rising to become the head of the firm.
Perella, who had previously founded investment bank Wasserstein Perella, was a top dealmaker at Morgan Stanley before striking out in what he once called a “protest resignation” against that firm’s CEO and strategy. He took a number of his proteges over to found Perella Weinberg Partners, while also recruiting top bankers from rival Goldman.
Goldman, JPMorgan Chase & Co. and Financial Technology Partners served as financial advisers to FinTech IV, while Keefe Bruyette & Woods served as buy-side adviser. Cantor Fitzgerald & Co., JMP Group LLC and Wells Fargo & Co. acted as capital-markets advisers to the SPAC, while Goldman and JPMorgan were private-placement agents.
Startups Going Public Via SPACs Face Fewer Limits On Promoting Stock
Companies can dazzle investors by appearing on YouTube and other media outlets in ways those doing traditional IPOs can’t.
In the run-up to an initial public offering, startups typically hunker down in a quiet period, keeping their executives out of the media to avoid running afoul of regulatory requirements.
For numerous executives that took their startups public in 2020 by merging with a special-purpose acquisition company, or SPAC, there was a different, perfectly legal approach: lengthy interviews with obscure YouTube channels frequented by individual traders, appearances on cable news, and projections that call for billions in revenue.
Publicity and forecasts of rapid growth have become routine aspects of the booming IPO alternative of going public through SPACs. The use of what are called blank-check companies, which go public with no assets and then merge with private companies, surged in 2020, raising a record $82.1 billion in 2020, up from $13.5 billion in 2019, according to Dealogic.
Startups that went public through SPACs, including many nascent companies with no revenue, have said they were attracted to the relative speed and certainty of the process, which can be completed months faster than some IPOs.
But as the tool gains favor, there are concerns about the regulatory differences between the two modes of going public. The prospect of wooing retail traders through media and inherently speculative projections brings heightened risk to stock-market investors, according to some venture capitalists and corporate-governance experts.
Because many of the companies are so young, the forecasts make them seem very attractive, said David Cowan, a partner at venture-capital firm Bessemer Venture Partners, who said he has short positions in several SPACs—meaning he is betting the stocks will fall from current levels. “These forward projections are a loophole to the guardrails the SEC has put in place to protect investors,” he said.
The Securities and Exchange Commission requires company executives to stay in a quiet period during the weeks around a public listing. Regulators don’t want companies to be marketing their stock to unsophisticated investors outside of a regimented process.
Similarly, companies generally don’t include projections in IPO documents because of regulations that put them at high risk for litigation if they miss those plans. Startups that go public through SPACs face fewer constraints because the deals are considered mergers.
The SEC didn’t respond to requests for comment. Outgoing SEC Chairman Jay Clayton told CNBC in September that he was focused on ensuring that SPACs offered the “same rigorous disclosure” as IPOs.
Many of the companies going public through SPACs say they were drawn to the process by the readily available funding—not the regulatory differences.
For Fisker Inc., FSR -4.62% an electric-vehicle startup that in July announced a deal to go public by merging with a SPAC, “the driving factor was the ability to raise money,” a company spokesman said. The differences in communication regulations didn’t affect the startup’s decision, he said.
Fisker has ambitious plans but little in terms of product or revenue today to show investors. While it had about 50 employees last spring, it disclosed projections to investors that called for it to hit $13 billion in revenue in 2025, up from zero in 2020.
The founder, Henrik Fisker, went on cable television repeatedly and remained prolific on social media. After the deal’s announcement—but before the merger was completed in late October—Mr. Fisker wrote on Twitter about how the company was sold out of reservations for the SUV it plans to build in 2022, and hinted about coming news before a deal with a manufacturer was announced.
The Fisker spokesman said that Mr. Fisker wasn’t marketing to individual investors and that his interviews were included in regulatory filings to investors.
SPAC sponsors, too, have taken to the airwaves to promote their companies. Venture-capital investor Chamath Palihapitiya appeared on CNBC in September, unveiling a merger between his SPAC and real-estate company Opendoor, in which he cited the company’s expected revenue growth, among other factors.
“These guys will do almost $10 billion of revenue” in 2023, he said, more than double the company’s revenue last year.
The stock of his SPAC rose 35% the day the merger was announced. Mr. Palihapitiya and Opendoor declined to comment.
Many startup chief executive officers going public through SPACs have appealed to more-tailored venues.
After hydrogen electric-truck startup Nikola Corp. NKLA -4.51% said it was going public through a SPAC merger in March, founder Trevor Milton conducted many interviews with hosts of podcasts and YouTube channels frequented by small investors.
He talked about the billions of dollars in future revenue the company expected and rejected criticism from people who said Nikola’s expected valuation was too high.
Jason MacDonald runs the YouTube finance channel JMac Investing, which he says attracts a crowd of individual investors interested in SPACs. It had just a few thousand viewers this summer, but he got an interview with Mr. Milton in May, in which the Nikola founder talked about the company’s high valuation, saying, “The business model is there, the profitability is there.”
Mr. MacDonald’s viewers have grown—he has more than 26,000 followers—and he has interviewed another CEO going public through a SPAC. He hopes for others.
“Every halfway-interesting SPAC, I’m reaching out to these companies,” Mr. MacDonald said. He said he is offering companies the chance to keep stoking interest with individual investors. “It’s going to be an interview, but it’s not hard-hitting,” he said.
The public communications have helped bring some nontraditional investors into the frenzy.
Lukas Brown, a 19-year-old student studying business in southwestern Norway, said he invested in the SPAC that merged with Nikola last spring after he saw a tweet by Mr. Milton discussing Nikola’s plans to go public.
“For me, it’s honestly pure speculation,” he said.
He said he more than tripled his initial investment before selling his shares this summer. In hindsight, he said he should have been more concerned about Mr. Milton’s frequent tweets about the stock price, which “should have been a danger sign.”
Nikola’s stock peaked in June at around $80 a share; it closed the year at $15.26. Mr. Milton resigned in September after a short seller accused the company of misrepresenting its technology. He and Nikola have denied allegations of fraud.
The Justice Department has joined U.S. securities regulators in examining allegations that Nikola misled investors by making exaggerated claims about its technology.
Nikola and a representative of Mr. Milton each declined to comment for this article.
Faraday Future Is Said In Talks to Go Public Via SPAC Merger
Faraday & Future Inc., an electric-vehicle startup, is in talks to go public through a merger with Property Solutions Acquisition Corp., a blank-check firm, according to people with knowledge with the matter.
The special purpose acquisition company is seeking to raise more than $400 million in equity to support the transaction, which is slated to value the combined entity at around $3 billion, the people said. As with all deals that haven’t been finalized, it’s possible that terms change or talks fall apart.
A Faraday spokesman didn’t respond to multiple requests for comment. A Property Solutions representative declined to comment.
Los Angeles-based Faraday, led by Chief Executive Officer Carsten Breitfeld, was founded by Jia Yueting, an entrepreneur who in October 2019 filed for bankruptcy in the U.S. after running up billions of dollars in personal debt trying to build a business empire in China. The company this week appointed Zvi Glasman, the former chief financial officer of Fox Factory Holdings, as its CFO.
The company has said its flagship vehicle, known as FF 91, will be available for sale about a year after the close of a successful round of funding.
Property Solutions, led by Chairman and co-CEO Jordan Vogel, raised $230 million in a July 2020 initial public offering. The company, which has the ability to pursue a combination in any industry, said at inception that it intended to target firms that service the real estate industry, including property technology.
Electric-vehicle companies including Nikola Corp. and Fisker Inc. have gone public in recent years by merging with blank-check firms.
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