The Special Purpose Acquisition Company (SPAC) momentum shows no signs of slowing down this year, with a number of high-profile companies and investors choosing this structure to raise billions of dollars. A SPAC, or so-called "blank-check company," has no commercial operations and is formed strictly to raise capital for the purpose of acquiring an existing company.
This type of setup gained a lot of momentum in 2020, with more than 50 SPACs raising billions of dollars. In fact, SPACs outpaced traditional initial public offerings (IPOs) last year, raising more than $73 billion, according to Business Insider citing Goldman Sachs research.
Goldman analysts expect the trend to continue this year, and we're seeing reports of high-profile investors exploring the SPAC route, including WeWork, Elliott Management Corp., and former baseball star Alex Rodriguez. This year, SPACs have raised more than $38 billion through 128 IPOs, according according to SPAC Research.
After its high-profile failure to go public in a more traditional way, WeWork is now exploring additional options to go public and is "weighing offers from a SPAC affiliated with Bow Capital Management LLC and at least one other unidentified acquisition vehicle for several weeks," according to a report from The Wall Street Journal last month.
Shake Shack Inc. (SHAK) founder Danny Meyer's SPAC called USHG Acquisition Corp. filed to raise $250 million in an IPO last week, Bloomberg reported. Hedge fund Elliott Management Corp. is looking to raise over $1 billion for its SPAC, according to a report in The Wall Street Journal on Sunday. And Alex Rodriguez is another high-profile name jumping on the SPAC bandwagon to launch a shell company called Slam Corp., according to Business Insider. Slam is looking to raise $575 million, according to the SEC filing.
Going public through a SPAC continues to generate investor interest, even though it increasingly looks like a bubble within a bubble, giving its early investors and creators a structural advantage. In fact, research shows that "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," according to The Edge Consulting Group.
For some investors, the frenzy is reminiscent of the speculation of the dot-com era. "If done well, it's a very effective transaction. It's one of the few times where the quote-unquote buyer has got enormous power," billionaire investor and founder of Equity Group Investments Sam Zell told CNBC, noting that some target companies did not project positive cash flow for years. "This is rampant speculation again, very much like the dot-com boom," he said.