Actionable Ideas for Companies and Sponsors

SPACs Continue to be a More Pervasive Buyer of U.S. Businesses

The surge in SPAC M&A activity that started in 2018 has continued unabated in 2019, fueled by 23 SPAC IPOs in 2019 raising over $5 billion and tracking ahead of 2018 records in both number and value. Consistent with this SPAC new issuance activity, the pace and size of SPAC mergers have accelerated as well. In 2019 there have been 11 mergers completed across multiple industries with an average enterprise value of $1.25 billion, 25% higher in average deal value than the 2018 average, and acquisition activity is on pace to exceed the 21 deals in 2018. In addition, there are currently 69 SPACs with $16.5 billion of equity capital looking for acquisitions, of which 10 SPACs with $3.5 billion of capital, will expire in 2019.

Companies considering a sale should focus on SPACs as a legitimate and competitive alternative to strategics or private equity buyers. SPACs are an attractive acquiror because: (i) the seller can participate in the future upside of the business through public equity ownership, while concurrently monetizing a portion of their gain through the SPAC’s cash, (ii) future monetization of a seller’s equity position is not dependent on other shareholders as is the case when rolling equity in a sale to a sponsor, and (iii) a sale to a SPAC creates an acquisition currency to accelerate a company’s growth through further M&A.