Actionable Ideas for Companies and Sponsors
SPACs Have Become a Mainstream Source of Acquisition Capital
SPAC IPOs continue to be one of the most active areas of new issuance, despite the increased market volatility. In 2019 YTD, SPACs have accounted for 52% of all U.S. IPO activity (14 SPACs have raised $3.2 billion) and are the second largest fee pool in the U.S. equity capital markets. Issuers include private equity sponsors and alternative asset managers (36% of issuers YTD), as well as senior operating executives with public company experience (64% of issuers YTD).
SPACs are compelling to clients, as they offer economics that are significantly more attractive than traditional private equity fund economics, with limited downside and significant upside in public company. Issuers typically receive 20% of the common equity in the SPAC for an investment of approximately 3%-4% of the IPO proceeds. For example, in a $250 million SPAC, the sponsor typically receives over $60 million of common stock for a $7 million investment in warrants.
SPACs provide issuers a pool of permanent capital raised from institutional investors and a flexible acquisition strategy that can be focused on one or more industries. For private equity sponsors and other alternative asset managers, a SPAC can broaden the scope of transactions they can pursue, serving as a vehicle to complete transactions that may not otherwise fit traditional fund mandates or as a differentiating way to partner with a strong executive.