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
Bitfury’s US Bitcoin Mining Subsidiary To Go Public Via $2B SPAC Merger
Bitcoin mining firms, even the newly-established ones, seem to be increasingly pursuing public listings.
Cipher Mining Technologies Inc. a subsidiary of blockchain development firm Bitfury has inked a $2 billion merger deal with Nasdaq-listed Good Works Acquisition Corp — a special purpose acquisition company, or SPAC. Both companies have entered into a business combination agreement.
According to a press release issued on Friday the merger will see Bitfury’s U.S. Bitcoin (BTC) mining enterprise become a publicly-listed company under the banner Cipher Mining Inc.
In addition to the combined $2 billion valuation for Cipher, investors like Morgan Stanley-backed Counterpoint Group and Fidelity Management and Research company will also lead a $425 million funding round.
This additional cash influx will proceed via a private investment in public equity, or PIPE, funding round. Bitfury will also provide a $50 million investment-in-kind to add to the $170 million left over from the October 2020 Good Works initial public offering, thus setting the combined company’s gross cash holdings at $595 million.
Commenting on the merger, Cipher Mining CEO Tyler Page remarked that the deal was a significant step in the emergence of properly capitalized Bitcoin mining enterprises, adding:
“With this transaction, we will be able to combine the formidable skill sets and technologies developed by Bitfury Group over the past 10 years with what we believe will be a leadership position on the global cost curve, and thereby create a true leader in the Bitcoin mining industry.”
With the merger expected to close in Q2 2021, Cipher is looking to achieve a 745 megawatts mining capacity by end of 2025. The company says it hopes to cross the 445 MW milestone between the end of 2021 and Q2 2022.
Cipher is the latest Bitcoin mining establishment to pursue a public listing albeit via a merger with a SPAC entity. As previously reported by Cointelegraph, Australian green energy Bitcoin mining outfit Iris Energy is set for a $39 million IPO in the summer.
With designs towards 745 MW in mining capacity, Cipher is also the latest example of the expanding Bitcoin mining outlay in North America. While China still dominates the BTC hash rate distribution, firms in the U.S. and Canada are reportedly increasing their inventory in the quest to dilute China’s control of the Bitcoin mining arena.
Meanwhile, Chinese miners are coming under significant regulatory pressure from municipal authorities. Earlier in March, reports emerged of crypto miners planning to exit Inner Mongolia amid energy consumption concerns.
Led by ‘Mr. SPAC,’ Credit Suisse Cashes In on Blank-Check Spree
A boom in blank-check companies is reviving Credit Suisse’s ambitions on Wall Street.
Credit Suisse Group AG is reaping the rewards from a spree of special-purpose acquisition companies. Leading the charge is a veteran banker who was among the first to bring SPACs to Wall Street 15 years ago.
The Swiss bank was the top underwriter of so-called blank-check firms last year and is second in early 2021, figures from data provider SPAC Research show. Its role in the suddenly booming sector has been a bright spot as the bank took $1.3 billion in unexpected charges last year and weathered a spying scandal and high-profile company frauds.
Spearheading the blank-check business is head of SPACs Niron Stabinsky, who was hired in 2015 from Deutsche Bank AG. He and Credit Suisse have built relationships with some of the most prominent SPAC founders, including venture capitalist Chamath Palihapitiya, veteran deal maker and Vegas Golden Knights owner Bill Foley, and real-estate investor Barry Sternlicht.
That group’s SPACs helped Credit Suisse bring in seven of the 10 biggest blank-check firms last year, according to Dealogic.
“Niron has become Mr. SPAC,” said Mr. Foley, who has worked with him on deals for nearly two decades.
SPACs founded by Mr. Foley and underwritten by Credit Suisse recently agreed to a $7.3 billion merger to take Blackstone Group Inc. -backed benefits provider Alight Solutions public and a $9 billion deal to combine with Paysafe Group Holdings Ltd.
SPACs are shell companies that raise money with the sole purpose of buying a private company to take it public. They have become a popular cash cow for big-name investors and celebrities to access public markets.
The fees bankers can earn throughout the SPAC process make the recent flurry of activity especially lucrative. Banks help set up a blank-check firm when it initially goes public and can also help a SPAC raise money for an acquisition and advise it or a target company on possible mergers. One hundred and sixteen SPACs have raised $35 billion in 2021, putting the market on track to shatter last year’s record of more than $80 billion, per SPAC Research.
In December, Credit Suisse Chief Executive Thomas Gottstein told investors he wanted to hire more bankers to work on mergers in health care and technology, common sectors for the 315 SPACs now looking for private companies. SPACs, IPOs and other share sales last year produced $771 million in revenue at Credit Suisse in the first nine months of 2020, nearly double the total from the same period in 2019.
The bank was involved in another large SPAC this week, when Mr. Sternlicht raised $900 million for his latest blank-check firm, one of the largest deals this year.
Mr. Palihapitiya, a prominent tech investor who has created six blank-check firms, has been key to Credit Suisse’s standing in the sector, bankers say. One of his SPACs bought space-tourism firm Virgin Galactic Holdings Inc. in 2019 and another is taking financial-technology company Social Finance Inc. public this year, both well-received deals that made SPACs more popular and lifted Credit Suisse.
“They’re perceived as a kingmaker,” said Kristi Marvin, founder of data and research provider SPACInsider.com and a former banker. “Anytime they do a deal, people automatically assume it’s good quality.”
Other banks have thriving SPAC teams too. But blank-check firms are particularly important to Credit Suisse because they represent a proportionally larger chunk of its investment-banking revenue, according to analysts. The bank shrank its presence on Wall Street last decade as it refocused on wealth management for the global rich.
The SPAC business highlights strategic themes Credit Suisse has been pushing. It says ultrawealthy clients want more investment-banking advice to sell companies and raise funding, while rich customers more generally want to replace low-yielding government bonds in their portfolios.
Some analysts say they are wary of risks for investors that may be lurking in the SPAC wave. One concern is that it is easier for a startup to laud its long-term growth forecasts when combining with a SPAC than in a traditional initial public offering. Banks working on the deals also have a lesser role as gatekeepers.
Due diligence was one of Credit Suisse’s headaches last year. Luckin Coffee Inc., a Chinese company it helped bring public in 2019, said in April some of its officers fabricated sales, cratering its shares.
Another company, Germany’s Wirecard AG , collapsed less than a year after Credit Suisse marketed securities to investors that were tied to the company’s shares.
Mr. Stabinsky said the quality of SPAC creators Credit Suisse works with is high. But he too is worried about what might happen if hyped companies fail after merging with blank-check firms.
“I do get concerned that if things go badly, it does have a reputational taint for SPACs,” he said.
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.
Real Estate Software Firm Latch To Merge With Tishman SPAC
Latch Inc., a maker of smart locks and building-management software, will go public in a merger with a special purpose acquisition company backed by New York-based real estate firm Tishman Speyer.
The deal with blank-check company TS Innovation Acquisitions Corp., which is expected to close in the second quarter, will give Latch an equity value of $1.56 billion and provide the company with $510 million to fund growth, according to a statement Monday.
Shares of the SPAC surged as much as 90% to $19.70 after the merger was announced on Monday.
SPACs have become an increasingly popular way for startups to go public. Latch, founded in 2014, works with apartment landlords, including Tishman Speyer and Brookfield, which is also an investor. Its products are used at buildings across 35 states.
As part of the merger, Rob Speyer, president and chief executive officer of Tishman Speyer, will join Latch’s board.
“As a longtime real estate and capital markets investor, Tishman Speyer has helped accelerate many of the prop tech innovations reshaping our cities,” Speyer said. “We launched our SPAC knowing that our expertise and portfolio could power the next generation of innovators on the public stage.”
Toll Brothers Inc., Brookfield Property Partners LP, RXR Realty and Related Group of Florida are among developers that incorporated technology from Latch in condo and rental projects in recent years.
Latch lets residents use their phones to unlock the door to their apartment, amenity spaces and the main entrance of a building. Users can grant access to guests and service providers, like dog walkers and cleaners, by providing them temporary entry codes.
Smart-Lock Maker Latch To Use Tishman Speyer SPAC To Go Public
Deal between startup and SPAC sponsored by property firm values Latch at $1.56 billion.
Latch Inc., a maker of smart locks and building-management software, plans to go public by merging with a special-purpose acquisition company backed by a real-estate giant, the latest startup looking to use a so-called blank-check vehicle to cash in on strong investor interest in tech-enabled businesses.
The merger will unite venture-capital-backed Latch with TS Innovation Acquisitions Corp. TSIA 44.79% , a special-purpose acquisition company sponsored by New York commercial real-estate firm Tishman Speyer Properties LP that raised $300 million late last year, the companies said Monday.
The deal, which values Latch at $1.56 billion, is expected to close in the second quarter, and Latch is expected to trade on the Nasdaq under the symbol LTCH, they said.
SPACs have increasingly gained favor over the past year among companies looking to go public and large investors looking to partner with them. These SPACs, which go public with no assets and then merge with private companies, raised a record $82.1 billion in 2020, more than six times the prior year’s total, according to Dealogic data. Nearly 300 SPACs are seeking deals, armed with about $90 billion in cash.
Another tech company, Taboola.com Ltd., also on Monday revealed plans to go public in a SPAC deal.
The content-recommendation startup behind those tempting “around the web” promoted stories, said it would merge with ION Acquisition Corp. IACA 14.47% in a deal that will bring in $545 million for Taboola and value it at $2.6 billion. Taboola’s SPAC plans come months after its plan to acquire competitor Outbrain Inc. was called off in September.
Latch, founded in 2014 as Latchable, is set to net around $450 million in cash from the SPAC and other investors including funds managed by BlackRock Inc., Fidelity Management & Research Co. and D1 Capital Partners LP, according to an investor presentation.
The deal would also be a windfall for Tishman Speyer. The company, which owns properties including Rockefeller Center and 200 Park Avenue in New York, is set to receive a roughly 4% stake in Latch, worth around $60 million, as de facto payment for sponsoring the SPAC.
Tishman Speyer is at the forefront of a small but growing group of real-estate companies getting into the SPAC business. Property-services giant CBRE Group Inc. launched a $350 million SPAC in December, while hotel-and-private-equity mogul Barry Sternlicht recently filed for his third such vehicle. Large property owners have started pouring money into real-estate startups in recent years, seeking to profit from rising valuations and modernize their own buildings.
Before launching the SPAC, Tishman Speyer had invested in about a dozen so-called prop-tech companies including Latch, Rob Speyer, Tishman’s chief executive, told The Wall Street Journal.
Mr. Speyer said that the pandemic has accelerated demand for real-estate technology products like Latch, and that he hopes to use Tishman Speyer’s expertise and connections to help Latch expand into new countries and new building types, such as offices.
“Real estate has been an industry that has been technology-resistant for decades,” said Mr. Speyer, who will also join Latch’s board of directors. “It’s hitting this period of massive disruption. It’s entrepreneurs like Luke and companies like Latch that are leading this wave of disruption.”
Luke Schoenfelder, chief executive of Latch, said the company and its adviser, Goldman Sachs Group Inc., evaluated more than 10 prospective deals. Ultimately, he said, Latch chose Tishman Speyer because of factors including its industry reach and a desire to remain independent.
Latch sees its future in providing software-as-a-service, supplying both its LatchOS building-operating system and its hardware to real-estate managers. The average contract length for its software is more than six years, according to Latch.
Mr. Schoenfelder said 2020 was Latch’s strongest sales year, helped by the pandemic’s spurring interest in tools such as contactless door and elevator controls. Latch has more than 200 employees and was last valued at $454 million as of 2019, according to PitchBook Data Inc.
“There’s a lot of space for us to expand,” Mr. Schoenfelder told the Journal, noting Latch’s products are installed in less than 1% of the 47 million rental units in the U.S.
Growing is critical to Latch’s path to profitability. It had a loss of $61 million before interest, taxes, depreciation and amortization last year, according to an investor presentation, and doesn’t project being profitable by that measure until the end of 2024.
Net revenue was $18 million in 2020, up from $15 million a year earlier, Latch reported. The company forecasts its revenue will nearly triple this year and reach $877 million in 2025.
Gamesmaker Nexters To Go Public Via Former MegaFon CEO SPAC
Nexters Global Ltd., the game developer behind Hero Wars and Throne Rush, is going public through a deal with a blank-check company started by former MegaFon PJSC head Ivan Tavrin.
The transaction between Limassol, Cyprus-based Nexters and Tavrin’s Kismet Acquisition One Corp. is valued at $1.9 billion, according to a statement Monday. Kismet Capital Group will invest an additional $50 million in the deal.
Tavrin, the founder of Russian media company UTH Russia Ltd. — now known as Media-1 — and former chief executive officer of telecommunications group MegaFon, has filed for three special purpose acquisition companies, or SPACs, since last year. Kismet Acquisition One, which raised $250 million in August, was formed to focus on acquisitions in the telecom infrastructure, internet, technology and consumer industries, according to its filing documents.
“There is a great opportunity for European businesses to go public on Nasdaq through SPACs,” Tavrin said in an interview. “It was our thesis that technology and innovation has no borders.”
Shares in Kismet, which is listed on the Nasdaq Capital Market, fell less than 1% to $10.40 at 10:37 a.m. in New York, after earlier climbing more than 3%.
Tavrin will join the board of the listed company. The transaction is expected to close in the second quarter, after which the company will trade under the GDEV ticker
Nexters was founded in 2010 by Andrey Fadeev and Boris Gertsovsky. Its main franchise is Hero Wars, a multiplayer battle game where characters fight for territory in a fantasy land known as Dominion.
”Nexters is very well diversified in terms of gamers and in terms of currency,” Tavrin said, adding that 60% of its users are in the U.S. and Europe, and 20% are in Asia, excluding China where the company has yet to establish a footprint.
GameStop Day Traders Are Moving Into SPACs
So-called blank-check companies are a hit with individual investors looking for speculative trades.
Day traders fueling enormous gains in popular stocks such as GameStop Corp. are also powering big swings for another suddenly hot investment: so-called blank-check companies.
Special-purpose acquisition companies—shell companies planning to merge with private firms to take them public—are rising more than 6% on average on their first day of trading in 2021, up from last year’s figure of 1.6%, according to University of Florida finance professor Jay Ritter. Before 2020, trading in SPACs was muted when they made their debut on public markets.
Now, shares of blank-check companies almost always go up. The last 140 SPACs to go public have either logged gains or ended flat on their opening day of trading, per a Dow Jones Market Data analysis of trading in blank-check companies through Thursday.
One hundred and seventeen in a row have risen in their first week. The gains tend to continue, on average generating bigger returns going out to a few months.
The gains in companies that don’t yet have any underlying business underscore the wave of speculation in today’s markets. Merging with a SPAC has become a popular way for startups in buzzy sectors to go public and take advantage of investor enthusiasm for futuristic themes.
But lately, day traders are even putting money into SPACs before they have revealed what company they are buying. At that stage, they are pools of cash, so investors are wagering that the company will eventually complete an attractive deal.
Despite the risks, many are embracing the trade, underscoring how online investing platforms and social-media groups now send individuals flocking to new corners of markets, including shares of unprofitable companies such as GameStop and AMC Entertainment Holdings Inc. That trend also is playing out in everything from shares of silver miners to SPACs, which were relatively rare before last year but are suddenly ubiquitous in finance.
“I would just have a bad case of FOMO if I wasn’t in SPACs,” said Marco Prieto, a 23-year-old real-estate agent living in Tucson, Ariz., referring to the fear of missing out that is driving many individuals to put money into markets.
He has a roughly $50,000 portfolio and about 60% of his holdings tied to blank-check companies. Some of his positions are early on in shell firms such as Social Capital Hedosophia Holdings Corp. VI, while others are based on rumors tied to possible deals by companies including Churchill Capital Corp. IV.
Shares of that company have more than doubled since Bloomberg News reported on Jan. 11 that it is in talks to combine with electric-car firm Lucid Motors Inc. Trading got so frenzied that the SPAC put out a statement a week later saying it wouldn’t comment on the report and that it is always evaluating a number of possible deals. The stock has still been gyrating in the days since.
Investors betting on SPACs even before such reports is extraordinary because the underlying value of a blank-check firm before it pursues a deal is the amount of money it raises for a public listing. That figure is typically pegged at $10 a share. Still, it has become common for investors to buy at higher prices such as $11 or $12 to back big-name SPAC founders such as venture capitalist Chamath Palihapitiya and former Citigroup Inc. deal maker Michael Klein.
In another sign blank-check firms are now frequently traded by individuals, several SPACs and companies that have merged with them recently joined GameStop and AMC on a list of stocks that had position limits on Robinhood Markets Inc., a popular brokerage for day traders. Those restricted included Mr. Klein’s Churchill Capital IV and a few of Mr. Palihapitiya’s SPACs in the Social Capital Hedosophia franchise.
The flood of money pouring in is a concern for skeptics who worry that everyday investors don’t understand the dangers of the trade. Even recent losses in a few hot companies such as electric-truck startup Nikola Corp. and health-care firm MultiPlan Inc. that merged with blank-check firms aren’t deterring investors because of the gains in other SPACs.
“It’s a tremendous amount of speculation,” said Matt Simpson, managing partner at Wealthspring Capital and a SPAC investor.
His firm invests when SPACs go public or right after, then takes advantage when shares rise and typically sells before a deal is completed. He advertised an expected return from the strategy of 6% to clients, but last year it returned 20%.
Ninety-one SPACs have raised $25 billion so far this year, putting the market on track to shatter last year’s record of more than $80 billion, according to data provider SPAC Research.
Fast gains in the shares can result in big payoffs for their founders and the first investors in blank-check firms like Mr. Simpson. These earliest investors always have the right to withdraw their money before a deal goes through. The traders who get in later don’t have those same privileges, but that hasn’t been a deterring factor.
“If you don’t take a risk, there’s really no opportunity at all,” said Chris Copeland, a 36-year-old in upstate New York who started day trading on the platform Robinhood with his girlfriend last month. Roughly three-quarters of his portfolio is tied to SPACs such as GS Acquisition Holdings Corp. II.
Trading volumes in many popular blank-check firms have increased lately, an indication of investors’ heightened activity. That trend is even drawing attention from some SPAC founders.
“It worries me,” said veteran investor and SPAC creator Bill Foley. Trading volumes have surged in one of the SPACs founded by the owner of the Vegas Golden Knights hockey team, especially since it announced a $7.3 billion deal to take Blackstone Group Inc. -backed benefits provider Alight Solutions public last week.
One reason traders are getting into blank-check firms when they are just pools of cash is that the time it takes for a SPAC to unveil a deal has dwindled. Blank-check firms normally give themselves two years to acquire a private company, but many these days need only a few months.
It also doesn’t take long for investor speculation about a blank-check firm’s acquisition to build, particularly because SPACs can indicate the sector in which they hope to complete a deal.
Excitement can be triggered by a SPAC pioneer like Mr. Palihapitiya, who sometimes hints to his more than 1.2 million Twitter followers when activity is coming. The former Facebook Inc. executive took space-tourism firm Virgin Galactic Holdings Inc. public in 2019 and last month reached a deal with Social Finance Inc.
Even though he invests in a number of blank-check firms other than his own—often when SPACs need to raise more money to complete deals—shares of his own companies can climb following such tweets. One example came Jan. 21, when one of his blank-check firms rose about 4% after Mr. Palihapitiya started a tweet by saying “I’m finalizing an investment in ‘???.’”
The SPAC has since given back those gains after no news about an acquisition came out and it was revealed that Mr. Palihapitiya’s investments were in companies unrelated to his own. He declined to comment.
Mr. Palihapitiya also has thrown himself into the frenzy of activity around GameStop trading, publicizing an options trade last week in the stock and taking profits on it.
Reports about possible mergers like those surrounding the Churchill Capital IV SPAC and a possible combination with Lucid Motors also quickly attract hordes of buyers. That blank-check firm is now owned by many individuals, including Messrs. Prieto, Copeland and Jack Oundjian, a 40-year-old who lives in Montreal.
“I’m very excited that we have a chance to be able to participate in what could be future unicorn companies,” or startups valued at $1 billion or more, Mr. Oundjian said. He said he views SPACs as long-term investments rather than fast trades, and holdings tied to the sector make up about 30% of his roughly $1.2 million portfolio.
Rocket Startup Astra Space Poised To Go Public At $2.1 Billion Valuation
Northern California space-transportation company would be first small-booster specialist to trade in U.S.
Northern California space-transportation company Astra Space Inc. intends to be the first maker of small rockets to go public in the U.S., using a blank-check company, or SPAC, in a transaction valuing it at $2.1 billion.
One of the few space startups with flight-proven technology, Astra said it is teaming up with billionaire telecommunications investor Craig McCaw to take advantage of the surging popularity of such transactions across an array of evolving high-technology sectors. SPAC stands for special-purpose acquisition company, a vehicle for swiftly taking entities public.
Alameda-based Astra, which has about 120 employees, late last year blasted a rocket to the edge of space from a launchpad in Kodiak, Alaska. The booster failed to reach orbit velocity during that demonstration flight in December. Company founder and Chief Executive Chris Kemp, a former high-ranking NASA official, said he expects another test soon, followed by an initial commercial mission as early as summer.
In going public, Astra seeks to stand out from a bevy of small-rocket competitors by locking in funding despite fallout from the coronavirus pandemic and an anticipated shakeout of rivals targeting the same market segment.
‘By launching more frequently, we can test all of the satellite components more frequently than any company out there.’
— Astra Space Chief Executive Chris Kemp
The company says it is able to lift satellites weighing about 100 pounds into low-earth orbit, but gradually hopes to increase that capacity about fivefold. Astra’s move comes amid a boom in the use of relatively compact satellites for internet access, earth imaging, military applications and other purposes.
“We are at a transformational period” for space access, Mr. McCaw said, adding that an explosion of opportunities and services potentially provided by fleets of small, versatile satellites “is the place where there is the biggest vacuum of unmet demand.”
One of the features differentiating Astra from competitors is its plan to blast off weekly—and eventually daily—relying on a mobile launch system, a handful of technicians, and operations from remote locations if necessary. Bigger rockets typically have a much slower launch tempo and require significantly greater investment in ground facilities.
In addition, Astra’s strategy is to provide a basic satellite design and then integrate that with customer cameras or sensors—effectively creating a one-stop shop for scientists, fledgling satellite manufacturers and other space newcomers looking for fast and inexpensive rides to orbit.
“By launching more frequently, we can test all of the satellite components more frequently than any company out there,” Mr. Kemp said.
That, he argued, will allow engineers and designers to send “the best microprocessors, memory chips, sensors and radios” beyond the atmosphere.
Mr. McCaw, a wireless pioneer and early advocate of the use of swarms of small satellites to provide space-to-ground services, in the mid-1990s backed an ambitious, multibillion-dollar project called Teledesic, which imploded. The high-profile failure became a symbol of overly optimistic technical and financial assumptions regarding satellite ventures during the dot-com investing bubble.
Today, “it’s like a dam bursting, there’s all this pent up energy” for connectivity, Mr. McCaw said. According to Mr. Kemp, listing the stock is envisioned to fully fund the company’s business plan through roughly the middle of the decade, based on a published price of $3.5 million per launch.
In recent months, SPACs have exploded in popularity, with scores of new blank-check companies now hunting for startups to bring public.
Other startups involved in the space industry have struck comparable deals with SPACs, including satellite-servicing provider Momentus Inc. and AST & Science LLC, which aims to beam satellite signals directly to individual cellphones.
SPACs have proven particularly appealing to industries in early stages of development, such as space and electric vehicles. Unlike in an IPO, where companies are restricted in their ability to talk about the future, the rules around SPACs allow these companies to emphasize future projected revenues to attract investors.
The rush of cash into speculative, early-stage companies has caused valuations to soar. The stock of space-tourism company Virgin Galactic Holdings Inc., which had been relatively stable ever since it went public through a SPAC in late 2019, has nearly tripled since fall 2020, when the SPAC boom accelerated. Its market capitalization Monday stood at $12.6 billion.
The merger between Astra and Holicity Inc., Mr. McCaw’s SPAC, is expected to be completed during the second quarter pending regulatory and shareholder approvals.
CCC Information Services To Go Public In $6.5 Billion SPAC Merger
Auto-insurance IT provider will merge with a SPAC backed by Dragoneer Investment Group.
CCC Information Services Inc. is teaming up with a special-purpose acquisition company to go public in a deal that values the IT provider to car insurers at $6.5 billion.
CCC will merge with a SPAC backed by Dragoneer Investment Group in a deal worth $7 billion including debt, the companies said Wednesday, confirming an earlier Wall Street Journal report.
Chicago-based CCC’s technology allows policyholders of insurance companies to upload photos into a mobile app from an accident scene and, moments later, get a repair estimate via artificial intelligence.
The company counts more than 300 insurers, 25,000 collision-repair facilities, dozens of auto makers and thousands of parts suppliers as its clients. Its technology connects these parties to get claims handled and vehicles repaired after wrecks.
The 41-year-old business, majority-owned by private-equity firm Advent International, is part of a wave of companies making their public-market debuts through SPACs rather than traditional initial public offerings. SPACs, also known as blank-check companies, turn the IPO process on its head by going public and raising cash without a business, and then searching for one to combine with.
The blank-check company in this case, Dragoneer Growth Opportunities Corp. , went public in August, raising $690 million.
Through the merger and an associated fundraising known as a PIPE, CCC will generate proceeds of nearly $1 billion.
Some of that is to go toward software research and development as techniques including artificial intelligence and machine learning are increasingly used to speed up and improve the claims and repair experiences of policyholders with damaged vehicles.
Among other efforts, car insurer USAA has been working since 2019 with Alphabet Inc.’s Google Cloud unit to develop a photo-based estimating program for its policyholders.
Last week, a London technology startup, Tractable, announced a partnership with Hartford Financial Services Group Inc. to use artificial intelligence to shorten the time between car wreck and repair at the body shop. Tractable is working with one of CCC’s rivals, Mitchell International Inc.
“We really think in the next five years, the pace of digitization we are seeing across our customer base will accelerate,” CCC Chief Executive Githesh Ramamurthy said in an interview. The firm is already spending $100 million annually on research and development, he said.
Eric Wei, a managing director at Advent, said CCC “is in the first inning in digitizing” the car-insurance industry’s claims process.
He said CCC was approached by several SPACs about a deal as it was preparing for an IPO. It opted to engage solely with Dragoneer because of the investment firm’s record and experience working with technology companies.
In addition to Dragoneer, which is known for backing tech startups like Airbnb Inc., Snowflake Inc. and Slack Technologies Inc., CCC will add mutual-fund firms Fidelity Investments and a unit of T. Rowe Price Group Inc., as well as Michael Bloomberg’s family office, Willett Advisors, as investors. None of CCC’s existing investors is selling as part of the deal.
Marc Stad, Dragoneer’s founder and portfolio manager, said there was so much demand that they kept the investor base very narrow.
The company will be renamed CCC Intelligent Solutions Holdings Inc. and is to start trading on the New York Stock Exchange when the merger closes. That is expected to happen in the second quarter.
Israeli Startup REE Plans Merger With 10X Capital SPAC
REE Automotive, an electric-vehicle technology startup, has agreed to go public through a merger with blank-check company 10X Capital Venture Acquisition Corp.
The transaction includes a $300 million private investment in public equity, or PIPE, and gives the combined entity an enterprise value of about $3.1 billion, according to a statement confirming an earlier report by Bloomberg News. REE’s existing investors will own more than 80% of the combined company.
REE, a Tel Aviv-based firm led by co-founder Daniel Barel, makes technology to integrate all drive components into the arch of the wheel and flat, modular chassis for autonomous delivery trucks, shuttles and robo taxis. The company says its platform can be used for battery or fuel cell-powered vehicles.
“Merging with a SPAC and becoming public is an important gateway that gives us the ability to scale up and meet demand,” Barel said in an interview. “We are here to deliver what we believe can be the cornerstone for e-mobility for the next century.”
REE will supply crucial parts to EV makers that don’t have the full spectrum of components in-house. By outsourcing, they can bring models to market more quickly and at a fraction of the cost, Barel said.
10X Capital shares soared about 50% before the start of regular trading in New York.
In August, REE signed a memorandum of understanding with Mahindra & Mahindra Ltd., an India-based manufacturer, to develop and produce as many as 250,000 EVs.
In November, it inked a partnership with Iochpe-Maxion SA to manufacture and develop a wheel design and chassis technology. REE also has tie-ups with Mitsubishi Corp., American Axle & Manufacturing Holdings Inc., KYB Corp., Musashi Seimitsu Industry Co. and NSK Ltd.
REE expects to have 16 assembly plants in locations such as the U.S., Germany and Japan by 2026, with annual capacity of about 600,000 units. It hopes to begin mass production next year, and has signed MOUs for orders worth $5.1 billion through 2026.
The 10X Capital SPAC, affiliated with the New York-based investment firm of the same name, is led by Chairman and CEO Hans Thomas. In November, it raised a little over $200 million in an initial public offering, saying at the time that it would focus on finding high-growth technology and tech-enabled businesses in the U.S. and abroad.
PIPE investors supporting the transaction include Koch Strategic Platforms, Mahindra & Mahindra and Magna International Inc.
“REE solves a critical issue in the EV space, we’ve seen them get a lot of traction and were able to get comfort around the valuation,” said 10X’s Thomas. “They’ve got best-in-breed partners that can help them manufacture at scale without having to invest billions of dollars and have a significant head start that’s going to create a competitive moat.”
Cowen Inc. was the lead financial advisor to REE, while Wells Fargo Securities and JVB Financial Group advised 10X. Morgan Stanley is the lead placement agent on the PIPE offering.
A flood of EV and related companies have agreed to go public through SPACs, including Arrival Ltd., Lion Electric, EVgo Services LLC, Faraday & Future, Lightning EMotors and Microvast.
Payoneer Reaches $3.3 Billion Deal To Go Public With Betsy Cohen SPAC
Payoneer Inc., the online payments firm used by the likes of Airbnb Inc. and Amazon.com Inc., agreed to go public by merging with a blank-check firm led by Betsy Cohen.
The deal with FTAC Olympus Acquisition Corp. values Payoneer at $3.3 billion, the companies said in a statement on Wednesday. The transaction also includes a $300 million PIPE, or a private investment in public equity.
Founded in New York in 2005, Payoneer said it is profitable and expects to collect $432 million in revenue in 2021. The firm, which allows e-commerce players to send and receive money around the world, processed more than $44 billion in payments last year.
“Payoneer is a wonderful example — and I’d be hard pressed to reach for another one that is quite as well advanced — in which the adoption curves of consumers and the capacity of the technology have melded and merged quite so well,” Cohen said.
The payments industry has been awash with interest from blank-check companies, which raise money from investors and then aim to merge with a private business. Payoneer’s deal follows a similar announcement from Paysafe Group Ltd. which agreed to go public by merging with a blank-check firm led by billionaire Bill Foley.
Sending and receiving money overseas can be lucrative for payments companies, but such transactions have been hindered after the coronavirus pandemic crimped foreign travel. Cross-border e-commerce volumes proved the exception, with consumers flocking to pay for goods and services online from shops all over the world.
Following its public debut, the firm plans to expand its offerings that allow businesses to transact with each other overseas, an area that’s long been dominated by pricey wire payments and paper checks. The firm also hopes to do more mergers and acquisitions of its own.
“We’re excited to not only have a bigger balance sheet but also a public currency,” Payoneer Chief Executive Officer Scott Galit said in an interview. Deals can help the firm enter new markets or build new products “more quickly than we could just doing everything organically.”
Bloomberg News first reported last month that talks about a deal were underway. Wellington Management, an existing shareholder in Payoneer, along with funds managed by Millennium Management and Fidelity, is among investors participating in the PIPE, according to Wednesday’s statement.
The combined firms are expected to have $563 million in cash. Payoneer’s existing shareholders — a group that includes TCV, Susquehanna Growth Equity, Viola Ventures, Nyca Partners and Temasek — will remain the largest investors in the reorganized company.
The deal is expected to close in the first half. Financial Technology Partners served as the financial and capital markets adviser to Payoneer. Citigroup Inc. and Goldman Sachs Group Inc. played both roles for Cohen’s blank-check company, while also serving as placement agents on the concurrent private placement.
“As much as we have accomplished to get to where we are, we really think we’re just scratching the surface and we’re just at the beginning stages,” Galit said. “We have a busy agenda.”
23andMe Goes Public Via Spac As $3.5 Billion Company With Branson Aid
Consumer DNA-testing company 23andMe Inc. has entered into a deal to merge with VG Acquisition Corp., a special purpose acquisition company founded by billionaire Richard Branson.
The agreement values the Silicon Valley company at $3.5 billion, with Chief Executive Officer Anne Wojcicki and Branson each investing $25 million into a $250 million private investment in public equity offering. Bloomberg News reported news of a potential deal last week.
Other investors include Fidelity Management & Research Company LLC, Altimeter Capital, Casdin Capital and Foresite Capital.
Current shareholders of 23andMe will own 81% of the combined company, with the deal expected to close in the second quarter of 2021. A merger with a special purpose acquisition company, or SPAC, allows 23andMe to go public without the uncertainty or holding an initial public offering.
“Covid-19 has really opened up doors,” Wojcicki said in a joint interview with Branson. Now more than ever, she said, people are interested in preventative health care. “I’ve had this dream since 2003 that genetics would revolutionize health care and that’s really the era I see we can now usher in.”
The influx of new capital will allow the company to expand its efforts in developing therapeutics from its trove of genetic data, according to Wojcicki. She also plans to expand the company’s reach on the consumer front.
In the 1970s, Branson founded the Virgin Group that now owns hundreds of companies. “There is no better money to invest than in health care,” Branson said in the interview Thursday.
SPACs have become a popular vehicle for companies to go public over the past year. The combined company will have a pro forma cash balance of more than $900 million. Once the deal is closed, VGAC will change its ticker to ME and the combined company will trade on the New York Stock Exchange.
Co-founded in 2006 by Wojcicki, 23andMe sells direct-to-consumer genetic testing kits. The company launched with the aim of using genetics to kick start a personalized health-care revolution, with a $1,000 test that could alert customers to potential health risks that quickly ran into regulatory issues that forced it to be pulled from the market.
Wojcicki then pivoted to ancestry testing, and later re-launched a health-care test after gaining Food and Drug Administration approval.
But the once-booming genetic testing business has since slowed as early adopters have thinned out and consumers concerned over privacy have shied away. 23andMe cut jobs last year, as did rival Ancestry.com Inc. Ancestry also last month pulled its own health test from the market and cut more jobs.
More Than Entertainment
23andMe, meanwhile, has doubled down on efforts to prove that consumer DNA tests offer more than entertainment value.
The company has vastly expanded efforts to turn genetic data from its more than 12 million customers into therapies, and has a deal to collaborate on drug development with GlaxoSmithKline Plc, which took a $300 million stake in the company in 2018.
Last year, the company licensed a drug developed in-house to another company. In total, it has more than 30 therapeutic programs in progress. But drug development is expensive, and Wojcicki said the merger allow the company to expand those efforts. “There is a lot more opportunity with cash,” she said.
“They are absolutely transforming drug discovery,” said Branson, who was an early investor in the company.
23andMe has also sought to find new ways to more directly impact the health decisions of its customers.
When the pandemic began, 23andMe launched a million-person study to look at how genomics and other factors contribute to how severely ill those who contract the virus become. Last month, it launched its Covid-19 Severity Calculator, which calculates a person’s risk of being hospitalized due to the virus.
In October, it also quietly launched a subscription product that gives consumers more detailed information about their health. Wojcicki said the company would like to be more involved in their customers’ health care.
“We want to solve the problem of doctors not knowing what to do with genetic information,” she said.
Wojcicki has long-expressed hesitancy about becoming a publicly traded company. But the focus on health care created by the pandemic created the right moment for a public debut, she said.
“We’re in a position to grow, to really accelerate what we’re doing in therapeutics and on consumer side,” Wojcicki said. “It’s the right time.”
LionTree Advisors served as financial advisor to VG Acquisition Corp. in the merger.
SPAC Superstar Chamath Palihapitiya Faces Some Awkward Questions
The SEC is following up on Hindenburg’s critical report on the health insurer. There’s a lot at stake for Chamath Palihapitiya and other investors.
It’s been hard to miss Chamath Palihapitiya lately. The former Facebook Inc. executive has launched six special purpose acquisition companies [SPACs], he’s an evangelist for Bitcoin and last week he became a cheerleader for amateur investors who bought GameStop shares to teach hedge funds a lesson. (Palihapitiya told his 1.2 million Twitter followers that he’d bought GameStop derivatives, but later he closed the position and donated the profits to charity.)
GameStop shares have collapsed 85% from the peak, leaving some Redditors holding the bag. Unlike some of his young admirers, Palihapitiya can afford such risks. He’s a billionaire, thanks in part to the big cut he gets from the SPACs he raises.
On Thursday, however, Palihapitiya’s Twitter account went quiet just when investors needed to hear from him most. Hindenburg Research published a critical report on Clover Health Investments Corp. alleging it misled investors. Clover provides health insurance for the elderly and is one of the companies Palihapitiya has taken public via a SPAC.
It’s not just Palihapitiya with a lot at stake here. The $828 million raised by his vehicle, Social Capital Hedosophia III, was the 10th largest amount raised by any SPAC in the past year, according to Bloomberg data. Chelsea Clinton is on Clover’s board, and Clover’s venture capital backers include Sequoia and Alphabet’s GV.
Hindenburg’s central claim is that Clover is under investigation by the U.S. Department of Justice over a range of questionable practices and the investigation wasn’t disclosed to investors.
On Friday Clover said it and Palihapitiya were aware of the DoJ inquiry, which was looked at during the due diligence process.
Consistent with the views of outside lawyers, they concluded that the DoJ’s request for information wasn’t material and didn’t require disclosure. Such requests from regulatory bodies are frequent in the health-care industry, the company added — although if I were an investor, it’s something I’d have wanted to know about.
Clover said it doesn’t believe it’s in violation of any laws or regulations related to that inquiry. It said it doesn’t provide gift cards to doctors to generate patient leads, as alleged by Hindenburg, and that the report contained other inaccuracies. Since the Hindenburg report was published, Clover has received a letter from the Securities and Exchange Commission informing the company of its own investigation.
I expect we’ll see much more of this type of thing as SPACs rush to take relatively immature companies public. I also expect the SEC, under new chairman Gary Gensler, will take a harder look at disclosures. SPACs are securing nosebleed valuations that are hard to justify based on current financials. It’s vital that investors get an unvarnished picture and that due diligence is thorough.
Hindenburg has targeted SPAC listings before. Its report last year questioning truck start-up Nikola Corp.’s technology led to the ouster of Chairman Trevor Milton. This time Hindenburg isn’t motivated by profit: Perhaps fearful that retail investors might rally in support of Palihapitiya and buy Clover stock, Hindenburg hasn’t put on a short position.
Instead, the report concludes with a defense of why short sellers and researchers who scrutinize company finances perform an important service for the investing public and aren’t the enemy. (Clover accused it of “posturing as a white knight.”)
The mission of Palihapitiya and other SPAC promoters is to convince investors that the usual way of joining the stock market, initial public offerings, aren’t well-suited for many companies. However, when you run an IPO you have Wall Street underwriters who sign off on a listing; with a SPAC merger it’s sponsors like Palihapitiya who do due diligence on the target.
Clover was preparing for a traditional IPO last year but opted for the SPAC, in part because it made telling the company story easier, its boss Vivek Garipalli told CNBC last year. (Clover says the IPO wouldn’t have required a disclosure about the DOJ inquiry either.)
Palihapitiya encouraged retail investors to buy Clover and other SPACs using one-page summaries and five-minute sales pitches on CNBC that turn complicated investment cases into easily digested soundbites. He described it as “one of the most straightforward investments I’ve ever made” and said the value could increase 10 times in 10 years.
Retail investors have bid up the shares of Palihapitiya’s SPACs and that loyal following encourages other start-ups hoping to obtain an attractive valuation to turn to him.
In fairness, Palihapitiya risks more of his own capital than is common in many SPAC deals. But his upside is much greater than the retail investors who invest alongside him because he gets free shares and cheap warrants for setting up the SPAC. He and his partners put about $170 million in Clover. He now controls shares worth more than twice that.
Investors have been more skeptical about Clover than they’ve been with some of Chamath’s other SPACs such as space-travel business Virgin Galactic Holdings Inc. and home-flipping site Opendoor Technologies Inc. Clover has $900 million in accumulated losses and expects to remain unprofitable for at least a couple more years. For now, almost all of its 57,000 members are in New Jersey and its health plan has an average 3-star rating.
Yet even after a 12% tumble on Thursday, the company is valued at more than $5 billion and trades at a more than 20% premium to where the SPAC sold shares to the public. Palihapitiya’s Reddit fans haven’t given up on him but he and other SPAC sponsors are certain to face a lot more scrutiny in future.
SPAC Mania Gives Early Investors Steady Returns With Little Risk
Hedge funds score gains when blank-check companies rise after announcing deals to take startups public
Sudden excitement about the flurry of startups going public through so-called blank-check companies is enriching some of the biggest players in finance, particularly hedge funds.
The gains come through the unique rights given to early investors in special-purpose acquisition companies, or SPACs, which look to acquire promising startups and take them public. As the vehicles become more popular, the hedge funds that invest in them early on, such as Magnetar Capital, Glazer Capital and Israel Englander’s Millennium Management, can earn lofty returns without much risk.
Here is how the trade typically works: Hedge funds give the SPAC money for up to two years while it looks for a merger target. In return, they get a unique right to withdraw their investment before a deal goes through that minimizes any loss on the trade.
At the same time, the potential return for early investors is huge if the SPAC shares rise because they also initially receive shares and warrants giving them the right to buy more shares at a specified price in the future.
Wall Street’s recent exuberance has engulfed SPACs, with day traders and large institutions alike pouring money into shell companies pursuing startups tied to themes such as green energy or sports betting. Recent SPACs have surged immediately after announcing deals to take startups public, giving the hedge funds opportunities to sell and turn quick profits.
One example came Jan. 7, when shares of the venture capitalist Chamath Palihapitiya’s Social Capital Hedosophia Holdings Corp. V advanced 63% after it said it is combining with Social Finance Inc. to take the financial-technology company public.
SPACs are often volatile around such announcements, but those that unveiled deals in the last three months of 2020 on average climbed 5.4% on the day of those announcements and traded 16% higher one month later, according to a Dow Jones Market Data analysis of trading in 39 such companies. The last 16 SPACs that have one month of trading following a deal announcement have all risen in that span.
Even if SPAC shares fall, early investors are protected by the right to withdraw. Throughout the whole process, they can sell warrants or hold on to them. When SPAC shares surge, warrants grow more valuable. Some analysts said that makes the funds’ trade a rare example of a mainstream investment that has limited pitfalls.
“It’s a free lunch—there’s no way around it,” said Michael Ohlrogge, an assistant professor of law at New York University.
He and Stanford Law School’s Michael Klausner studied SPACs that merged between January 2019 and June 2020 and found that hedge funds nearly always sold their shares or withdrew before deal completion. The average annualized return for those that withdrew was 11.6%.
Returns have likely improved lately given the excitement in the sector, according to analysts. Last year SPACs raised $82 billion, a figure greater than all previous years combined and nearly half of all capital raised in U.S.-listed initial public offerings, according to Dealogic.
The momentum explains why many investors have bought more SPAC shares. Eight had more than $1 billion invested in SPACs at the end of the third quarter last year, led by Millennium, Magnetar and Glazer, according to regulatory filings compiled by data provider SPAC Research. Polar Asset Management and Linden Advisors round out the top five.
And 51 investors who had less than $100 million in SPAC holdings in the second quarter of last year held that amount or more by September. Data from the end of 2020 will be disclosed in mid-February.
The gains for early investors often come at the expense of other stakeholders, particularly those who take on more risk when buying shares later in the process after a deal is announced or goes through, Mssrs. Ohlrogge and Klausner argue.
Many of those later positions are traditional holdings that carry more risk. Their performance is tied to a SPAC completing an attractive deal or the value of a startup rising over time after it combines with a blank-check firm.
Although SPACs are still a small part of markets, the trend is another result of the unique financial conditions resulting from the pandemic and ultralow interest rates. Returns from the hedge-fund trade were limited in the past because companies didn’t need the flexibility offered by SPACs, it was more costly to borrow money, and sentiment was muted, analysts said. But last year’s wave of momentum made it attractive.
“It was this perfect environment,” said Patrick Galley, a SPAC investor and chief executive of RiverNorth Capital Management.
Even institutions including Saudi Arabia’s $300 billion Public Investment Fund, which typically make long-term investments, are putting money into SPACs. Alberta Investment Management and Healthcare of Ontario Pension Plan, Canadian entities that manage pension funds, have sizable holdings.
Like early-investing hedge funds, Alberta Investment Management considers selling before a deal goes through or withdrawing when attractive, said Justin Lord, director of public equities . On the other hand, Healthcare of Ontario Pension Plan tries to avoid withdrawing, according to Adrian Mitchell, vice president of public equities.
The Saudi Public Investment Fund didn’t respond to a request for comment.
Investors take on more risk when they hold shares after a SPAC deal goes through, but gains in companies such as DraftKings Inc. and Virgin Galactic Holdings Inc. are encouraging more of those bets as well.
The risks for hedge funds that invest early also increase if they don’t withdraw or sell after a stock rises. Some that previously would sell early are also adding more risk by holding after deals go through. They can also invest when a SPAC raises additional money to complete a deal, a process called a private investment in public equity.
Glazer Capital, the third-largest SPAC investor as of September, more frequently stays invested if it sees an attractive business, portfolio manager Vik Mittal said. Part of that decision hinges on whether notable SPAC founders such as Mr. Palihapitiya and former Citigroup Inc. executive Michael Klein are involved.
“There weren’t as many institutions of that caliber raising SPACs as there are today,” Mr. Mittal said.
Still, the danger of holding shares after a startup merges with a SPAC is highlighted by the electric-truck company Nikola Corp. and the health-care firm MultiPlan Inc. Shares of both companies have fallen after they were attacked by short sellers. Short sellers borrow stock, sell it, then attempt to buy it back at a lower price.
Singapore’s sovereign-wealth fund GIC Pte. and the Saudi Public Investment Fund were large MultiPlan shareholders as of October. MultiPlan went public last year by merging with a SPAC set up by Mr. Klein’s Churchill Capital Corp.
Despite the pockets of volatility, investors continue piling in, often creating opportunities for hedge funds without even realizing it.
“There’s a frothy feel to the SPAC universe,” said Roy Behren, managing member at Westchester Capital Management and an investor in the space.
Fuel-Cell Truck Startup Hyzon Agrees to Merge With Decarbonization Plus SPAC
Hyzon Motors Inc., a fuel cell truck startup, has agreed to go public via a merger with Decarbonization Plus Acquisition Corp., according to people with knowledge of the matter.
The special purpose acquisition company has held discussions about raising new equity to support the transaction that values the combined entity at more than $2 billion, some of the people said, requesting anonymity because the talks are private. A deal could be announced within the next week.
Representatives for Hyzon and Decarbonization Plus declined to comment. Shares of the SPAC pared a gain of as much as 26% in early trading Friday, trading up 18% to $16.25 as of 10:22 a.m. in New York.
Decarbonization Plus, a vehicle sponsored by an affiliate of private equity firm Riverstone Holdings and led by Erik Anderson, raised about $226 million in an October initial public offering. It said at the time it wanted to find a target “whose principal effort is developing and advancing a platform that decarbonizes the most carbon-intensive sectors.”
Hyzon was spun out of Singapore-based Horizon Fuel Cell Technologies Pte, which has been developing fuel-cell technology for commercial applications for almost 20 years. The startup, which counts Total SE among its investors, makes hydrogen-powered big rigs, buses and coaches.
The use of hydrogen and fuel-cell technology in commercial vehicles isn’t new. However, investor interest has intensified since U.S. startup Nikola Corp. listed its shares in early June with the help of blank-check company VectoIQ Acquisition Corp. Despite zero revenue, Nikola quickly saw its market value surge as high as $28.8 billion before sliding back to its current valuation of about $9 billion.
Nikola has promised global fleets of hydrogen fuel-cell semi trucks and other commercial vehicles that it plans to build from 2023.
According to BloombergNEF, fuel-cell vehicles could to capture as much as 30% of bus-fleet volume globally by 2050 and as much as 75% of heavy-vehicle fleets, with growth driven primarily by demand from China and the European Union.
Hyzon is headquartered at a former General Motors Co. facility in Honeoye Falls, New York. In July, it announced plans for a plant in the Netherlands as part of a joint venture with Holthausen Clean Technology BV. It also has unspecified manufacturing activities with an undisclosed partner in Shanghai, and operations in Australasia.
Hyzon says it already has more than 400 commercial vehicles on the road using its fuel cell technology. It expects to deliver about 5,000 fuel cell-powered trucks and buses by 2023 and is targeting annual capacity of around 40,000 fuel cell-electric vehicles by 2025. In August, Hyzon inked a deal with Australian mining company Fortescue Metals Group Ltd. to build a fleet of hydrogen fuel cell buses.
EV companies including Fisker Inc. and Arrival Ltd. have agreed to go public through SPAC mergers.
KKR SPAC Files For $1 Billion IPO
The blank-check company is led by former Gap CEO Glenn Murphy.
Blank-check company KKR Acquisition Holdings I Corp., sponsored by KKR & Co. Inc., in partnership with Glenn Murphy, filed for an initial public offering with the U.S. Securities and Exchange Commission on Thursday.
Mr. Murphy, the blank-check company’s chief executive and executive chairman, is currently chairman of Lululemon Athletica Inc. and previously served as chairman and CEO of Gap Inc. from 2007 to 2014, the company said.
KKR Acquisition Holdings I said it planned to offer 100 million units at $10 per unit. Each unit will consist of one share of Class A common stock and one-third of a warrant. Each full warrant allows the holder to purchase a share of Class A common stock for $11.50.
“We believe our access to the KKR platform will provide the potential to consider a variety of business combination opportunities,” the company said.
The company also said it intends to apply to list its units on the New York Stock Exchange under the symbol “KAHC.U.”
SPAC Analyst Sees Very Brief Window Before Stocks Lose Money
The longer a portfolio holds a special purpose acquisition company, the worse it’s going to perform, according to a new study by a special situations research firm.
Most SPACs lose money after finding a company to acquire, and they do so at an accelerating rate over the 12 months that follow a merger. That’s according to the Edge Consulting Group, a team of analysts that covers special situations, which researched 115 SPACs that closed acquisitions between 2015 and the end of 2020.
Initial public offerings by blank-check companies spiked during the pandemic. The listings snowballed some more when stocks pushed to new records in 2021. More than 120 SPACs have gone public already in 2021, raising nearly $40 billion for potential acquisitions, according to data compiled by Bloomberg. But, on average, they have underperformed traditional IPOs.
“What surprised us was how short-term these benefits are and how quickly the returns and outperformance drops off,” said Alex Korda, an analyst at the firm. “SPAC investors should adjust to focus on the post-merger sweet spot.”
That sweet spot, Korda said, is the first few months after a SPAC makes its acquisition. Returns usually drop after that, until a year after the merger, when the company has normalized and is no longer viewed as a post-SPAC situation.
Alternatively, investors can get in to a SPAC shortly after its IPO, before knowing what it will acquire. Those bets are more likely to pay off than trading around a merger announcement, the firm found, but at the cost of significant uncertainty and limited opportunity for due diligence.
“With SPACs being a fairly new trend, it’s probably too early for broadly applicable assumptions on how this plays out and whether they’re truly a good measure for value creation,” Korda said. “It’s important for investors to catch that brief period post-merger for that balance of due diligence and better returns.”
SoftBank-Backed Grofers Weighs Listing Via U.S. SPAC Deal
Grofers, an Indian online grocer, is weighing a plan to go public in the U.S. through a merger with a special purpose acquisition company, people familiar with the matter said.
The SoftBank Vision Fund-backed company is working with an adviser, one of the people said, asking not to be named as the information is not public. The grocer is seeking a deal that would value the firm at about $1 billion, another person said.
Deliberations are at an early stage and the company could decide not to proceed with the plan, the people said. A representative for Grofers declined to comment.
The SPACs trend is rapidly spreading beyond the U.S., with blank-check companies springing up in recent months to focus on targets in Asia, or with ties to the region. James Murdoch and former president of Walt Disney Asia Pacific Uday Shankar are seeking a blank-check vehicle to acquire Asian companies, Bloomberg News reported this week.
Grofers sells grocery and daily household products from cooking oil to Indian spices to shoppers in more than 27 Indian cities, according to its website. Its eight in-house brands make up the majority of the products it sells to the roughly three million people who have downloaded its app.
SoftBank’s Vision Fund led an investment round of more than $200 million into the company in 2019, along with Tiger Global, Sequoia Capital and KTB.
In a post-earnings presentation to investors on Tuesday, SoftBank Group Corp. founder Masayoshi Son said the company may see between 10 to 20 public listings a year from its portfolio of 164 startups across three different funds.
SPAC Veteran Graf Eyes $675 Million for Three New Companies
Veteran blank-check firm executive James Graf is planning to raise $675 million for three special purpose acquisition companies, the latest would-be serial issuer of the increasingly mainstream vehicles, according to people familiar with the matter.
The SPACs are dubbed Graf Acquisition Corp. II, III and IV, said one of the people, who requested anonymity because the information is private. The entities will target $150 million, $225 million and $300 million respectively.
Graf will be chief executive officer of the vehicles and Tony Kuznik will be executive vice president and general counsel, said the person. Each SPAC will have a broad mandate, able to target a business or businesses in any sector, and may be upsized based on demand or a so-called greenshoe, the person added.
A representative for Graf declined to comment.
Before pursuing SPACs of his own, Graf — a former investment banker — was a director of Platinum Eagle Acquisition Corp., and vice president, chief financial officer and treasurer of both Double Eagle Acquisition Corp. and Silver Eagle Acquisition Corp. His first SPAC, Graf Industrial Corp., merged with sensor technology company Velodyne Lidar Inc.
After a record 2020, the grab for capital by SPACs has continued into the new year. In the first six weeks of 2021, some 155 U.S. vehicles filed for initial public offerings, seeking to raise a collective $46 billion, Bloomberg data show.
Next Stop For Electric-Vehicle SPAC Mania: The Jetsons
Archer may take the lead in developing electric air taxis after merging with a blank-check company, but widespread adoption is still science fiction.
Wall Street has found a combination even more faddish than blank-check companies and electric vehicles: Blank-check companies and Jetsons-style flying taxis. While there is some promise in the idea, investors had better hope that this isn’t too much glamour packed into one.
On Wednesday, electric air-taxi developer Archer announced a merger with Atlas Crest Investment, ACIC 2.92% a special-purpose acquisition company, or SPAC, led by billionaire investment banker Ken Moelis.
In a SPAC, investors give money to a publicly listed sponsor in the hope that it will find an attractive acquisition target, without knowing what it will be. The SPAC frenzy of recent months has focused on electric vehicles as well as other “cool” startups such as space-tourism venture Virgin Galactic.
Archer will have a $3.8 billion valuation, and get $1.1 billion in extra funding. The company’s pitch is to develop an electric vertical-takeoff-and-landing vehicle, or eVTOL, that can fly four passengers over congested urban areas for distances up to 60 miles. Futurists have long anticipated that people will fly to work as they do in the famous Hanna-Barbera cartoon “The Jetsons.” Now investors and companies are taking it seriously.
United Airlines and Mesa Airlines said Wednesday that they have placed a $1 billion order for Archer’s aircraft. The idea is to fly people from populated areas to United’s hubs—for example, from Hollywood to Los Angeles International Airport—by 2024, cutting carbon emissions per passenger by about 50%. Archer plans to make 10 vehicles that year, and increase to 250 in 2025.
The companies trying to develop air taxis range from aerospace manufacturers and airlines to car makers and technology firms. There are hundreds of designs, and even the U.S. Air Force has partnered with some projects.
Lufthansa Innovation Hub estimated in a report earlier this month that only startups with capital over $700 million had a chance of succeeding in developing, certifying and commercializing the technology. Until the latest SPAC deal, only Joby Aviation, which is backed by Uber, Toyota and JetBlue, had cleared that bar. Now there are two.
An all-electric commercial jet is infeasible due to battery weight: At triple the current pace of battery improvement, it would take until 2100 to build an electric 737. But an air taxi or even a small regional airplane may be within the reach of today’s means. New designs also lower noise levels.
But technology doesn’t equate to a viable commercial enterprise.
In the mid-2000s, money poured into promises of a similar boom in very light personal jets that never ended up happening. Conventional helicopter taxi services have always been grounded by problems such as high pricing, inadequate infrastructure and poor safety standards.
It is doubtful that the Uber-style air taxis that many backers have in mind can develop anytime soon. For one, these vehicles will need dedicated landing pads. Also, a joint analysis by Ford and the University of Michigan found that a fully loaded eVTOL vehicle reduces carbon emissions in trips above 62 miles, but ends up polluting more than gasoline cars if flown for under 22 miles. This limits the technology to the kind of airport-feeder traffic that United envisages.
Ever since Britain’s 19th-century canal and railway manias, revolutions in transportation have been facilitated by easy money chasing a science-fiction future. The reality is often unpleasant for investors that get caught up in one.
The King Of SPACs Wants You To Know He’s The Next Warren Buffett
Chamath Palihapitiya has already drafted the next chapter in his charmed-life story.
The immigrant kid who bootstrapped his way into riches at Facebook Inc., made billions as a risk-hungry investor and became the pied piper of the current blank-check craze now envisions himself as nothing less than the Warren Buffett of the Reddit era.
“Nobody’s going to listen to Buffett,” Palihapitiya, the founder of Social Capital, said in a Bloomberg “Front Row” interview. “But there has to be other folks that take that mantle, take the baton and do it as well to this younger generation in the language they understand.”
The language, of course, is social media. That’s where the 44-year-old billionaire talks up his deals, trolls the establishment and hypes “all things Chamath.” Recently, he stoked speculation he might run for governor of California. Occasionally, he tweets out shirtless selfies to his 1.3 million followers. His feed is a digital stream of consciousness.
With Twitter as his bullhorn, Palihapitiya has become the undisputed king of special-purpose acquisition companies, the hottest thing on Wall Street. Together with Ian Osborne, a public-relations soothsayer turned financier, he has sponsored six SPACs, raised a total of $4.34 billion and acquired businesses in space travel, health insurance, financial services and real estate.
Along the way, Palihapitiya has made a fortune for himself and his investors, and helped whip up a frenzy that has everyone from Colin Kaepernick to former House Speaker Paul Ryan racing to market their own SPACs. He’s also a lightning rod for skeptics who pooh-pooh his success as the product of relentless self-promotion and see blank-check companies as proof of a bubble inflated by massive government money-printing.
If SPACs are emblematic of a speculative mania, then Palihapitiya is the face of that moment.
Palihapitiya said anything that popular will lure its share of copycats and wannabes, and inevitably many will fail. He’s confident his brand and investing acumen will not only make people rich, but help democratize finance and level the playing field for ordinary investors.
Plus, there’s that whole Buffett thing. He fancies growing his empire into a Berkshire Hathaway-esque conglomerate for the 21st century, complete with investor conference calls, an analyst day and its own must-attend annual meeting. All of which, in his vision, will generate enough wealth to shrink the inequality gap in America.
It’s pretty grandiose stuff.
“I do want to have a Berkshire-like instrument that is all things, you know, not to sound egotistical, but all things Chamath, all things Social Capital,” he said.
It was also Palihapitiya who took a leading role in the frenzy around so-called meme stocks, tweeting on Jan. 26 that he’d bought GameStop Corp. call options and helping fuel its short-lived surge. He exited the trade before GameStop crashed, making a $500,000 profit he donated to charity.
Palihapitiya then joined Reddit’s WallStreetBets crowd in bashing short-sellers and denounced Robinhood Markets, which temporarily limited purchases of meme stocks, as a “bunch of corporatist scumbags.”
He acknowledges such rhetoric isn’t exactly Buffett-like. But then again, perhaps that’s the point.
“Who I am is a byproduct of my generation and my media culture, which is faceted — not always great facets, but multifaceted,” he said. “You have to speak in the language of the times in order to get your point across.”
Palihapitiya’s bro-ish manner — cocksure and full of swagger — isn’t for everyone. It’s arguably what caused his venture-capital firm to implode in 2018. But his SPACs have delivered results, at least so far.
The first SPAC he raised with Osborne merged with Richard Branson’s Virgin Galactic in 2019 and now trades at $59, up from the standard offering price of $10. His five others also are well above $10, including the two that haven’t announced acquisitions yet — a testament to investors’ confidence and also to the central-bank largess that has inflated risk assets globally.
Critics contend SPACs are flawed and dangerous, with incentives that overwhelmingly favor sponsors and insiders at the expense of individual investors. Palihapitiya says he’s working with Credit Suisse Group AG on ways to reduce share allocations to hedge funds and to allow retail money to participate in so-called PIPE financings.
“On the deals that I do I take a 20% carry, and I think that I can find targets and find opportunities that will make that more than reasonable in the final analysis,” he said, adding that in every one of his SPACs, he has invested millions of dollars of his own money. The only reason he said he’ll ever sell any shares is to release cash for other endeavors.
Rise, Fall And Rise
In Silicon Valley, where his rise was meteoric and ultimately turbulent, everyone knows who “Chamath” is. It’s getting that way in financial circles, too. Not quite a “Jamie” or “Ray,” but on his way there.
Born in Sri Lanka, Palihapitiya emigrated to Ottawa as a boy. He worked part-time at Burger King to help his parents make ends meet. After getting a degree in electrical engineering from the University of Waterloo and trading derivatives for a year, he moved to California.
At Facebook, his responsibilities included the nascent mobile business and international markets. He left in 2011 to found Social Capital and took early stakes in Slack and SurveyMonkey. Palihapitiya also bought part of the Golden State Warriors basketball team in 2011, Bitcoin in 2012, Amazon.com Inc. shares in 2014 and Tesla Inc.’s convertible debt in 2015.
And then it all seemed to fall apart. His marriage dissolved, his key partners in Social Capital left and several investors balked at committing new funds. Many thought Palihapitiya had flamed out.
Three years later, he’s bigger than ever.
Palihapitiya estimates his wealth at somewhere between $10 billion and $15 billion, much more than public disclosures would suggest. Most of that — the insurance, software and health-care businesses he owns privately, his SPACs, the new seeding program he started for amateur money managers — will become part of the holding company he’s modeling on Berkshire.
One of Palihapitiya’s slogans is that only two things matter: inequality and climate change. He said investing in solutions for both is his mission at Social Capital. That’s why he’s also making a “huge bet” on securing critical supplies for lithium-ion batteries so the U.S. isn’t at China’s mercy in its efforts to tap green energy. He expects the effort to cost billions.
His populist appeal has won Palihapitiya millions of fans. Recently, it lent credibility to the rumor he planned to run for governor. While Palihapitiya is upset about everything from taxes to crime rates in California and is funding the #RecallGavinNewsom effort, he insists he has no intention of seeking office.
Instead, he said he’ll back candidates who share his centrist ideals and eventually plans to spend “hundreds of millions a year” building a machine that can rival the conservative influence of the Koch and Mercer families.
In the meantime, Palihapitiya says he has no plans to “cut and run” like the other billionaires fleeing his state, including Tesla’s Elon Musk and Oracle Corp.’s Larry Ellison. His strategy: be loyal, stay on brand, hide nothing.
“I make better decisions when I am authentic and transparent,” he said. “The best way to do that is just to be living my life out for everybody to see.”
Klein’s Churchill Said To Raise $1.68 Billion In Two New SPACs
Financier Michael Klein raised a combined $1.68 billion in initial public offerings of two new blank-check companies, according to a person with knowledge of the matter.
Churchill Capital Corp. VI raised $480 million, upsized from $400 million in the IPO, said the person, who asked not to be identified because the information wasn’t public yet. A second special purpose acquisition company, Churchill Capital Corp. VII, raised $1.2 billion after earlier planning to raise $1 billion, the person said.
A representative for Churchill Capital declined to comment.
One of Klein’s SPACs is in talks to take Lucid Motors Inc. public in a transaction that would value the carmaker at about $15 billion, Bloomberg News has reported. That SPAC, Churchill Capital Corp IV, closed trading Thursday at $31.50 a share, more than three times its $10 trust price.
JPMorgan Chase & Co. is leading the Churchill VI IPO, while Churchill VII is being advised by Citigroup Inc.
Baby Monitor Maker Owlet To Go Public Via Sandbridge SPAC
Baby monitor maker Owlet Baby Care Inc. said it was going public through a merger with a blank-check company backed by private equity firm Sandbridge Capital.
Lehi, Utah-based Owlet and Sandbridge Acquisition Corp. will have a combined value of $1.1 billion including debt after the deal is completed, according to a joint statement Tuesday that confirmed an earlier Bloomberg News report.
The combined company also raised $130 million in a private placement to support the transaction. Investors in the private placement include Fidelity Management & Research Co., Janus Henderson Group Plc, Neuberger Berman, OrbiMed Advisors, plus private funds affiliated with Pimco and Wasatch Global Investors.
Ken Suslow, the chairman and chief executive officer of the special purpose acquisition company, and Domenico De Sole, the chairman of menswear brand Tom Ford, will join the board after the merger.
Founded in 2013, Owlet makes cameras and monitors that help parents track their infant’s breathing, heart rate and sleep time, among other features. It also offer a sleep-training app, and is planning to launch a product aimed at pregnant women, its website shows.
Owlet’s owners, Eclipse Ventures and Trilogy Equity Partners will roll their stake in the company.
More dealmaking could be in the works for Owlet, its chief executive officer said in an interview.
“We intend to consolidate this market,” Owlet CEO Kurt Workman said. “We are working in the area of the connected nursery, software subscription content around parenting, and then expanding our capabilities in health care.”
Sandbridge Acquisition raised $230 million in September through an initial public offering. Units in the SPAC were down 3.6% at $11 at 9:57 a.m. in New York.
The special purpose acquisition company was started by Sandbridge Capital, a consumer-focused private equity firm with past investments in companies such as fitness company Hydrow Inc., outerwear-maker Rossignol and fashion marketplaces that are now publicly traded including the RealReal Inc. and Farfetch Ltd.
Sandbridge’s Suslow said the SPAC was attracted to Owlet’s core business, which he said was growing more than 50% a year with high margins in hardware. Plus, it has a strong brand equity with its customers and a high barrier of entry, he added.
“It’s got this great emotional connection with its consumer,” Suslow said, “which for us is gold, candidly.”
The deal has a 18-month earn-out period for half of the shares its founders would receive in the so-called promote, Suslow said, meaning the team will have to stay invested for that time frame to pocket the full fees.
Bank of America Corp. advised Owlet and Citigroup Inc. advised Sandbridge.
Activist Elliott Seeks $1.5 Billion In Two Blank-Check Listings
Activist investor Elliott Management Corp. filed on Friday to set up two special purpose acquisition companies raising a combined $1.5 billion.
Elliott Opportunity I Corp. is seeking to raise $1 billion, while Elliott Opportunity II Corp. is targeting $500 million, documents filed with the U.S. Securities and Exchange Commission show.
Both of the blank-check firms count Jesse Cohn and Gordon Singer as co-chairmen. Cohn and Singer — the son of Elliott founder Paul Singer — are managing partners at the activist investment firm.
Each unit of the SPAC comprises one Class A share and one-fourth of a redeemable warrant. While the vehicles can acquire targets in any sector, they plan to focus on technology companies, the filings show.
David Kerko, head of North America private equity at Elliott, and Isaac Kim, managing partner at the firm’s private equity affiliate Evergreen Coast Capital, are co-chief executive officers of the SPAC. Kerko, a former co-head of the technology group at KKR & Co., joined Elliott in 2021, the filing shows.
Elliott, which was founded by Paul Singer in 1977, had about $42 billion worth of assets under management at the end of December. The firm has pushed for changes at some of the world’s largest and most prominent companies, including Twitter Inc., SoftBank Group Corp. and AT&T Inc., among others.
Its private equity arm was launched two years ago and has acquired companies ranging from bookseller Barnes & Noble Inc. to tech companies like LogMeIn Inc. and Travelport Worldwide Ltd.
Credit Suisse Group AG, Citigroup Inc. and UBS Group AG are advising on the listings.
Michael Klein Hits The SPAC Jackpot With Reddit-Adored Lucid
Despite the big potential payday, the former Citi rainmaker can’t be entirely comfortable with the way shares in Churchill Capital IV have surged.
Having a $2 billion pot of cash is pretty nice but what if shareholders told you that cash is really worth about $15 billion? It sounds like a great problem to have, but it creates complications too.
This is essentially what’s happened to Churchill Capital Corp IV, the largest of Michael Klein’s seven special purpose acquisition companies. CCIV, the ticker by which the former Citi banker’s SPAC is known by Redditors and other retail fans, is at the center of the stock market’s latest bout of speculative mania. As with Tesla Inc., this one also involves an electric-vehicle company.
Churchill Capital IV raised a bit more than $2 billion in an initial public offering last summer by selling shares for $10 a piece, the standard price for most blank-check companies. Those shares now trade at $58, even before the SPAC has agreed a takeover or said what the terms of a deal might be.
SPACs are listed vehicles used to acquire promising companies, thereby taking them public. Most trade close to $10 at least until they’ve announced a merger, so what’s going on with Churchill?
Bloomberg News reported last month that Klein’s SPAC is in talks to merge with electric-vehicle company Lucid Motors Inc. Lucid hasn’t begun delivering vehicles yet, or disclosed financials, but its fans think it could mount a serious challenge to Tesla and Mercedes-Benz in luxury electric cars.
There are signs that a deal is near, with Reuters reporting that Lucid will be valued at about $12 billion and that Churchill has begun talks with investors about a concurrent capital-raising transaction, known as a PIPE. But Lucid and Churchill haven’t confirmed any of that yet, so investors bidding up the SPAC’s shares are taking a punt.
To me, $12 billion already seems a lot for a pre-revenue company, albeit one whose first model — the Lucid Air — is pretty desirable and whose British Chief Executive Officer Peter Rawlinson led the engineering for Tesla’s Model S. The implied valuation, however, is far higher. Based on where the SPAC shares are trading, shareholders believe Lucid is worth about seven times as much.
In a world where Chinese carmaker Nio Inc. is valued at $85 billion despite delivering fewer than 50,000 electric vehicles annually, and Tesla’s market capitalization is $750 billion, it seems that anything goes. Retail investors are driving Churchill’s shares higher, possibly in combination with opportunistic hedge funds, as happened with GameStop Corp.
CCIV has become one of the most discussed stocks on investor forums such as Stocktwits and a 17,000-member subreddit. Almost 240 million shares have changed hands in the last three trading sessions — remarkable considering only 207 million shares are tradable.
Klein, a former Citigroup Inc. rainmaker who’s raised about $7 billion across his SPACs, is an unlikely hero for amateur investors. He’s more discreet than rival SPAC star Chamath Palihapitiya, but can the Reddit romance last?
The biggest potential problem is that the more the Churchill price rises, the more Lucid will be tempted to renegotiate the terms of the deal, which might cause the SPAC’s price to fall, thereby burning the retail crowd.
And while Lucid is shaping up as one of the most lucrative SPAC deals so far, retail investors — as usual — aren’t the ones in line to make the truly big bucks.
First, consider the sponsor. Klein and his investment partners paid about $43 million for shares and warrants that are now worth roughly $4.7 billion by my calculation.
If Churchill follows the typical SPAC approach, it would split those returns three ways: a third to its financial partners, a third to members of Churchill’s brain trust (people like former Apple design boss Jony Ive and former Ford Motor Co. CEO Alan Mulally), and a third to Klein’s firm M. Klein & Co. The sponsor shares are usually subject to lockups and vesting criteria and their capital is still at risk. Still, it’s an astonishing jump in value.
Then there are hedge funds like Millennium Management LLC, Karpus Management Inc. and Citadel Advisors LLC who’ve made huge paper gains while taking no risk. Hedge funds often snap up SPAC units (shares plus free warrants) because they offer downside protection: Until a SPAC completes a deal, investors can redeem their shares and get their cash back. You’d imagine some arbitragers have already cashed in some of their Churchill profits.
Finally, consider the lucky participants in the concurrent $1 billion-plus capital raising (PIPE) transaction that Churchill is reportedly considering. It’s customary to price such deals at $10 a share, too, so if that happens the buyers would immediately realize huge paper gains because the SPAC’s share price is now $58. Retail investors wouldn’t benefit as only accredited investors get to participate in PIPE deals. Shareholder democracy, eh?
“I’d assume the $10 PIPE financing will be the most competitive deal of all time,” Julian Klymochko, CEO of Accelerate Financial Technologies Inc., which manages a SPAC-focused ETF, told me.
One reason tech companies have gone off regular IPOs is that they’re often mispriced. The massive “pop” on the first day of trading leaves the founders feeling shortchanged.
Merging with a SPAC gives the founders price certainty — they get to negotiate the deal value directly with the acquirer — but they still run the risk of underestimating demand for their shares. Lately, there’s been a big pop whenever SPAC deals involving electric-vehicle companies are announced.
What’s strange in Lucid’s case is that the pop has happened before a deal has even been signed. If it wanted, the carmaker could push for better terms — such as a smaller stake for Klein’s SPAC — or walk away and do a regular IPO at a much higher valuation. I doubt that’s going to happen, though.
First off, Lucid can’t be sure how “real” this investor enthusiasm is. Its valuation could tumble if frothy market conditions change: Tesla’s shares are already 10% below their peak. With Churchill, Lucid is guaranteed to raise at least $3 billion of capital.
Relations between the two sides must be pretty convivial, too. Lucid’s biggest shareholder is Saudi Arabia’s Public Investment Fund, and Klein is one of the kingdom’s most trusted financial advisers, having helped steer the listing of Aramco. This time he and the PIF are on opposite sides of the negotiating table, but neither gains if the SPAC’s shares collapse.
As Tesla’s many successful capital raisings have shown, it helps to have a sky-high valuation but it’s imperative to keep retail investors sweet. Disappoint them and they might find another electric-car company to rally behind. There are plenty around.
That’s changed recently with a lot of SPACs immediately trading at a premium to cash in trust. Still, even the really popular ones don’t tend to trade above $20.
The SPAC’s $2 billion pot of cash would in theory entitle it to a roughly 17% stake in the company at the valuation Reuters reported. But there’s a lot we don’t know about the transaction yet, so this is very back of the envelope stuff.
This filingshows the Churchill IV sponsor owns 51.75 million shares and 42.85 million private placement warrants. CCIV’s financial partners may own shares directly in the SPAC and PIPE, which aren’t included here.
Warehouse Robotics Provider Berkshire Grey To Go Public Through SPAC Deal
The agreement comes as ‘exploding’ e-commerce demand drives investor interest in supply-chain automation.
Logistics automation provider Berkshire Grey Inc. is planning to go public through a merger with special-purpose acquisition company Revolution Acceleration Acquisition Corp. that would value the robotics company at $2.7 billion.
The deal, the latest in a SPAC boom that is bringing technology companies to the market, is expected to provide Bedford, Mass.-based Berkshire Grey up to $413 million in cash. The business expects to have about $507 million in cash at the closing, expected in the second quarter.
Berkshire Grey shareholders Khosla Ventures, New Enterprise Associates, Canaan Partners and SoftBank Group Corp. will roll 100% of their equity into the combined company, the companies said Wednesday.
Berkshire Grey, founded in 2013, develops systems that use artificial intelligence, mobile robots and scanning, gripping and sensing technology to pick orders and speed goods through distribution centers. The business had $35 million in revenue last year and expects to generate $59 million in revenue in 2021 and become profitable in 2024.
Its customers include Walmart Inc., Target Corp. and FedEx Corp. The company will use the funding from the SPAC deal to accelerate growth and build new technologies for its core markets, said Chief Executive Tom Wagner.
The deal comes as the pandemic-driven surge in e-commerce sales is sparking intense investor interest in logistics and technology that can help expedite online orders to consumers. Wilmington, Mass.-based Locus Robotics Corp., which makes autonomous mobile robots that help workers pick orders, said this month that it raised $150 million in Series E funding that brings the company’s valuation to $1 billion.
Distribution operations that once relied largely on human labor are turning to automation as the pandemic and social-distancing requirements have made it harder to boost output by simply hiring more workers.
“E-commerce is just exploding,” said Revolution Acceleration Acquisition Chief Executive John Delaney, the former U.S. congressman from Maryland who co-founded the SPAC with AOL co-founder Steve Case. “We believe it is becoming mission critical for the supply chain—whether in retail, e-commerce, grocery, package handling or delivery—to embrace automation.”
Mr. Wagner said Berkshire Grey’s technology helped existing customers meet the flood of online orders during the pandemic without having to add additional shifts.
“They were able to flow the demand to the system at a time when it was very hard to upstaff and add people,” he said.
The robotics firm’s move is the latest in a series of such mergers that come as private companies look for ways to tap public markets for financing. Electric-vehicle startup Lucid Motors Inc. said Tuesday it was merging with a publicly listed “blank-check” firm in one of the largest such mergers announced so far.
SPAC Pioneers Reap The Rewards After Waiting Nearly 30 Years
Blank-check companies have raised more than $70 billion this year; their co-creator once feared the SPAC wouldn’t make it.
The flashiest trend in finance traces back three decades to a pair of old law-school buddies. Now, they are finally cashing in.
Investment banker David Nussbaum and lawyer David Miller —known to each other as “Nuss” and “Miller”—invented the special-purpose acquisition company in 1993 to give private firms another way to access everyday investors. SPACs were rarely used and obscure for much of their careers, but are now all the rage—attracting the biggest names in finance, technology and entertainment. Messrs. Nussbaum and Miller have never been busier.
“It’s taken me 27 years to become an overnight sensation,” said Mr. Nussbaum, a 66-year-old from Roslyn, N.Y., on Long Island, who co-founded the SPAC-focused investment bank EarlyBirdCapital Inc.
Also called blank-check companies, SPACs are shell firms that list on a stock exchange with the sole purpose of combining with a private company to take it public. They have become a popular way for startups to access individual investors and a cash cow for the wealthy individuals who create them. SPAC founders now include everyone from hedge-fund manager William Ackman to former baseball player Alex Rodriguez.
SPACs have raised nearly $75 billion this year and now account for more than 70% of all initial public offerings, up from 20% two years ago and a negligible total for much of the past 20 years, according to Dealogic.
The products’ sudden ubiquity has been jarring for Messrs. Nussbaum and Miller, who watched their product struggle for nearly three decades. Many on Wall Street were suspicious of SPACs because their predecessors were called “blind pools” and tied to penny-stock fraud in the 1980s.
Messrs. Nussbaum and Miller met at New York University Law School in the late 1970s before going on to work at law firms. Mr. Nussbaum decided to open his own brokerage in the late 1980s, then was involved in a blind-pool deal that inspired him to begin work on the SPAC.
In the early 1990s, the Davids spent over a year working with regulators to install protections for investors and other changes to prevent fraud before completing the first blank-check firm. Among them were the right for a SPAC’s investors to get their money back before a merger with a private company goes through. They also beefed up disclosure requirements ahead of such deals. Those features are now touted by blank-check company bulls.
Still, SPACs struggled to compete with traditional initial public offerings and other methods for raising money until splashy names like sports-betting firm DraftKings Inc. started using them to go public in recent years and more startups began using them to make projections to investors—something that isn’t allowed in a traditional IPO.
“It’s become bigger than anyone expected,” said Mr. Miller, a 66-year-old from Queens, N.Y., who is managing partner at law firm Graubard Miller and still has stacks of regulatory documents from the first blank-check companies because they were created before Securities and Exchange Commission filings were digitized.
Even though shares of many SPACs and companies that have merged with them have struggled lately, DraftKings and other popular stocks like electric-car battery company QuantumScape Corp. are still up about 55% or more in the past six months. An index of companies that recently went public is up more than 30% in that span.
Graubard Miller has a 10-person corporate law department and has been involved with about $6.3 billion of SPAC deals so far this year, according to data provider SPAC Research, already topping its 2020 total and making it one of the top 10 advisers in the sector along with much bigger law firms on Wall Street.
Bankers and lawyers earn fees when blank-check companies are created and when they complete deals to take private companies public. They can also make money helping SPACs raise additional funds to acquire startups.
Mr. Nussbaum’s 25-person investment bank is also benefiting from its co-founder’s role in forming the SPAC. Nearly all of EarlyBird’s business is from SPACs, and it has been involved in creating blank-check firms worth $2.3 billion so far in 2021, eclipsing its total from last year and keeping the company among the 15 most active banks in the area. Whenever EarlyBird does a SPAC transaction, every employee gets a bonus, Mr. Nussbaum said.
Critics of the blank-check boom warn that the high volume of deals done by smaller banks is a signal that the SPAC surge has gone too far because those deals often feature less heralded investors and companies.
The firms that have recently become worth billions of dollars in SPAC deals involving Messrs. Nussbaum and Miller include agricultural-technology company AppHarvest Inc. and electric-car battery maker Microvast Inc. Both men say their experience is helping them reel in more mergers.
“I am really happy for them,” said Arthur Spector, a venture capitalist who ran the first SPAC Messrs. Nussbaum and Miller worked on in 1993. “They put in a huge amount of work and from some people took a lot of grief.”
The blind-pool deal that prompted Mr. Nussbaum to begin work on SPACs in the 1990s took toy maker THQ Inc. public. THQ shares initially soared thanks to the popularity of a game tied to the movie “Home Alone”—the company eventually went bankrupt many years later—inspiring Mr. Nussbaum to look more closely at the blind-pool structure.
Shortly after that deal, he contacted Mr. Miller to add more investor protections to the process. Those changes eventually led to the 1993 SPAC—Information Systems Acquisition Corp. The company raised $12 million and eventually combined with a software firm. That company was later acquired by HP Inc.
Messrs. Nussbaum and Miller initially had a trademark on the name “SPAC,” prompting others to create similar vehicles with different acronyms like “SPARC” and “TAC.” The founders eventually let others use “SPAC” and more were created, but the dot-com boom of the late 1990s made traditional IPOs more popular and blank-check firms fell out of favor.
At the time, Mr. Miller wondered if SPACs were a “one-trick pony” that might go away completely. He and Mr. Nussbaum continued working on traditional IPOs and other deals. In 2000, Mr. Nussbaum co-founded EarlyBird Capital.
Following the internet bust, Mr. Spector approached Messrs. Nussbaum and Miller about doing the first SPAC of the new millennium.
Blank-check companies briefly took hold in the mid-2000s as larger stock exchanges began listing SPACs and big-name investors like Nelson Peltz used them as deal-making tools, but the financial crisis again interrupted the volatile market.
Investor returns in SPACs were muted until early-stage, high-growth companies like space-tourism firm Virgin Galactic Holdings Inc. started merging with them in 2019, a key shift that returned blank-check firms to their original purpose, Messrs. Nussbaum and Miller said.
Both men said they now plan to work until it is no longer fun. Like others on Wall Street, they acknowledge that the current pace of SPAC activity isn’t sustainable. But for now, they are thrilled after overcoming years of resistance.
“The reputational disadvantage SPACs had is dissipating dramatically,” Mr. Nussbaum said.
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