U.S. SPACs overtake 2020 haul in less than three months

U.S. SPACs overtake 2020 haul in less than three months

News: U.S. SPACs overtake 2020 haul in less than three months.

(Reuters) – Wall Street held up 2020 for a hectic year for Special Purpose Acquisition Companies (SPACs).

But more than nine months before the end of 2021, US SPAC IPOs this week surpassed the $ 83.5 billion the sector raised throughout 2020, data from industry tracker SPAC Research showed.

According to IPOScoop data, that’s also more than the $ 29.5 billion that companies that run companies have raised since the beginning of the year, as opposed to empty shells like SPACs.

The breakneck growth of a once obscure backlog of capital markets reflects the popularity of SPACs as a alternative Vehicle to traditional IPOs. The merger with a SPAC will allow companies to debut on the stock market with forecasts and forecasts that are not as regulated as IPO investor roadshows. In return, however, they often give away a larger share of themselves than if they were going public.

“If you had told me at the beginning of the year that we would have exceeded the 2020 total before the end of the first quarter, I would not have believed it. It was pretty phenomenal and there are no real signs that the momentum will stop anytime soon, ”said Carlos Alvarez, Head of Permanent Capital Solutions at UBS Group AG.

Build Acquisition Corp’s $ 200 million IPO on Tuesday brought US SPACs IPO revenues up from last year, which, according to SPAC Research, was more than six times the previous record.

The value of mergers between SPACs and private companies has already surpassed the total volume of the previous year, even though the sector was not a one-way street for investors.

Graphic: SPAC madness sees the IPO record fall in 2021 –

Currently, 408 SPACs, with $ 131.1 billion in cash, are looking for companies to merge with. Based on the rough rule of thumb that a SPAC will usually merge with a company three to five times its size, that equates to purchasing power of potentially over $ 600 billion.

SPACs are immensely popular with amateur retailers as well as Wall Street funds hoping to do justice to the coattails of the prominent investors who bring them to market. Billionaire Bill Ackman, tennis player Serena Williams and former House Speaker Paul Ryan are among those who raised SPACs.

SPACs have made their appeal by focusing on doing business in futuristic industries like electric vehicles, self-driving cars, and space exploration. While investors typically have two years to find a deal, most of them close a merger within a few months.

“The current amount of liquidity in the system is unprecedented. Not only is there a great price umbrella to get these deals to market, the cost of holding a SPAC is significantly lower for investors as business combinations come remarkably quickly, ”said Warren Fixmer, managing director of Bank of America and co-head of its SPAC practice .

EASY COME EASY GO

The increase in SPACs was fraught with risk. While many made meteoric profits looking for a deal, others quickly saw their stock rallies reverse.

Churchill Capital IV Corp. were up more than 500% last month in anticipation of a merger with electric vehicle startup Lucid Motors, but fell back on the announcement of the deal as investors became more skeptical about the prospect of a car in the short tern.

The Defiance Next Gen SPAC Derived ETF, an exchange traded fund (ETF) that tracks SPACs, fell as much as 30% from its record high after launching in September this month. It is currently trading around 15% from its high.

“Where SPACs go from here depends 100% on what happens to the broader stock market,” said Michael Ohlrogge, assistant professor of law at New York University who studied SPAC performance.

“However, if there is a correction, there will be a lot of pain in the SPAC market.”

Reporting by Joshua Franklin in Boston; Arrangement by Greg Roumeliotis and Richard Pullin

Original Source © Reuters

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