Actionable Ideas for Companies and Sponsors
The SPAC Phenomenon Continues and Attracts Corporate Entrants
The SPAC phenomenon became a frenzy in the first quarter of 2021 with both issuance of new SPACs and SPAC-related mergers continuing at unprecedented levels. To date in 2021, 295 SPAC IPOs have raised proceeds of $93 billion. In just twelve weeks, these levels already exceed issuance levels for all of 2020. Further, there have been 144 SPAC mergers announced representing $235 billion in transaction value announced year-to-date, compared to 124 transactions with a value of $211 billion in all of 2020. There are over 430 SPACs seeking targets with over $140 billion of proceeds to deploy. While both the issuance and PIPE markets have experienced recent buyer pullback, there remain many viable targets to match the buying demand of a large reservoir of SPACs.
Further, while SPACs largely have been the domain of financial sponsors, executives and other investors, the market has expanded to include both corporate issuers and carve-out transactions effected with SPACs by corporates. In November 2020, Liberty Media raised a $500 million SPAC with the goal of finding a target in its verticals of expertise – the broader media, entertainment and communications sectors. And, in February, Post Holdings issued a SPAC raising $400 million seeking a target in the consumer products industry where it can provide managerial and sector expertise.
In February, Gores V, backed by serial issuer The Gores Group, announced it would combine with AMP, the metal packaging business of Ardagh, in a transaction valued at $8.5 billion. Ardagh will retain a stake of approximately 80% and receive up to $3.4 billion in cash. Similarly, in June of 2020, Landcadia II announced the $745 million merger with Golden Nugget Online Gaming which was a carve-out merger from Golden Nugget. Recently, it was rumored that L Brands is considering a carve-out SPAC combination for its Victoria’s Secret brand.
For corporations, the SPAC merger/carve-out for subsidiaries offers certain unique benefits including: (i) providing a public market valuation benchmark for an otherwise imbedded subsidiary, (ii) flexibility to manage the size of the retained stake balanced with cash proceeds, (iii) partnering with a team which potentially can bring increased oversight and managerial breadth, and (iv) creating a path to future liquidity. The corporate carve-out universe could open a broader range of candidates to SPACs seeking a target.
The SPAC market will settle to a more normalized level of issuance and merger activity, but the SPAC vehicle will likely remain as a viable alternative to the traditional IPO, while providing sellers a highly tailored, hybrid means of selling assets.