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SPACs—special purpose acquisition
companies—are one of Wall Street’s
hottest products. These publicly traded
shell companies give tycoons and celeb-
rities the capital to search for splashy
one-shot deals.
In a 2016 paper, Lora Dimitrova of
the University of Exeter Business School
dubbed SPACs “the poor man’s private
equity funds.” That’s because they give
ordinary investors a way to participate
in the purchase of a hot company before
it goes public—a perk usually reserved
for the wealthy.
It makes sense. The venture capital world is practically
closed to “the poor man,” while fast-growing startups are
staying private for longer. So individuals are turning to
blank-check shell companies as their gateway to alterna-
tive investments.
Last year’s boom shows no signs of stopping. In the first
two months of 2021, 188 SPACs went public, raising $60 bil-
lion and setting a pace to quickly surpass 2020’s record of
$83 billion, data compiled by Bloomberg show. Blank-check
companies are attracting more money than conventional
initial public offerings.
Hedge funds are playing the field, but so are retail inves-
tors. These “poor men” account for about 40% of SPAC
trading on BofA Securities Inc.’s trading platforms. This
year, SPACs on average are rising more than 6% on their
first day of trading, up from last year’s 1.6%, a sign of heavy
retail participation.SPACs typically have two years to find
a target and close the deal, or they have
to return money to investors, plus inter-
est. They tend to spend at least three to
five times the amount of cash they’ve
raised. Using that formula, and with the
average SPAC IPO generating $335 mil-
lion last year, hundreds of blank-check
companies would be searching for pri-
vate firms valued at $1 billion or more.
SPACs have looked for value plays
in fields such as energy, industrials,
and finance. Now, most new SPACs
are searching for targets in tech, health care, and con-
sumer discretionary sectors. Electric-vehicle startups are
a hot spot, with 26 EV makers, including Nikola Corp.
and Luminar Technologies Inc., merging with SPACs last
year, data provided by PitchBook Data Inc. show. Shares
of Churchill Capital IV, a SPAC, soared when it proposed
combining with Lucid Motors.
There are 10 SPACs seeking to buy cannabis startups,
according to New Cannabis Ventures. Shares in Silver
Spike Acquisition Corp. roughly doubled this year after
finding a target in December. Gaming is another hot
space: DraftKings, a sports betting operator, now trades
at about $60 a share, more than a threefold increase from
its April debut.
Retail investors want the next big exotic thing. Boring
logistics or mortgage company deals won’t appeal to them.
The billionaires launching SPACs will have to think outside
ILLUSTRATION BY GEORGE WYLESOL the box. <BW> �Ren is a columnist for Bloomberg OpinionBy Shuli Ren
SPACs Are ‘the Poor Man’s
Private Equity Funds’
◼ LAST THING
With Bloomberg Opinion