The Economist - USA (2021-02-20)

The Economist February 20th 2021 59

Finance & economics

Capital markets

SPAC invasion

W

hat linksMartin Luther King III, the
son of the civil-rights leader; Sha-
quille O’Neal, a former basketball player;
and Kevin Mayer, the former boss of Tik-
Tok? The unlikely trio sponsors a special-
purpose acquisition company (spac), a
listed pot of capital that seeks a firm to take
public through a merger. Mr O’Neal is not
the only sportsman turned spacman. Colin
Kaepernick, the former quarterback fa-
mous for kneeling during America’s na-
tional anthem to protest against racism,
has teamed up with a private-equity firm to
launch a “socially conscious” spac. Alex
Rodriguez, a former baseball player, plans
to raise up to $575m for a spac targeting
sports-related firms.
Financiers are in on the action, too. Bill
Ackman, the boss of Pershing Square, a
hedge fund, launched a spacthat raised
$4bn in July, making it the biggest to date.
Gary Cohn, a former Goldman Sachs bank-
er and adviser to President Donald Trump,
has one too. So do a number of private-eq-
uity giants, including Apollo, Ares,  Bain,
kkr and tpg.

Around 250 spacs were launched last

year in America, raising $83bn. Things

have only sped up since: in January an av-

erage of five were created each working

day, amassing more than $26bn in capital.

Because they tend to raise more cash once

they find an acquisition target—around

five times that in the initially listed pot—

spacs may be looking to buy firms worth as

much as $500bn, about 1% of the value of

all listed American companies. Look be-

yond the frenetic growth and you find a

spectrum of spacs, ranging from the ear-

nest to the exuberant.

The life of a spactends to last at most

two years. It begins with the sponsor tak-

ing the blank-cheque firm public. Inves-

tors typically pay $10 a share and also re-

ceive warrants, which give them the right

to buy more shares at a later date. The

sponsor then searches for an acquisition

target that is looking to raise capital and go

NEW YORK
Blank-cheque firms are gobbling up capital and companies. How to make sense of
the craze for SPACs

→Also in this section

60 SPACs and the Valley

61 Great expectations for global recovery

61 Advantage Amsterdam

62 Bitcoin breaks $50,000

62 A new boss at the WTO

63 Buttonwood: Inflation fears

64 Free exchange: Fiscal spillovers

SPAC attack

Sources: Bloomberg; The Economist

Special-purpose acquisition companies (SPACs)

150

120

90

60

30

0

2020 2021

FJDNOSAJJMAMFJ

Selected SPAC developments

Ack-SPAC Bill Ackman launches biggest ever

SPAC with improved cost structure

SPAC-SPAC Easterly Alternatives, an asset

manager, announces fund to invest in other SPACs

Circular SPAC Vehicle backed by HPS, an

investment firm, merges two private-credit funds,

one of which owns a stake in HPS

Shaq-SPAC Shaquille O’Neal, a former TikTok

CEO and Martin Luther King III launch SPAC

Sport-SPACs Alex Rodriguez, former baseball

player, backs SPAC; Colin Kaepernick, former

football quarterback, sponsors another

1

2

3

4

5

5

4

3

2

1

Cumulative capital raised since January 2020

$bn