Actionable Ideas for Companies and Sponsors
Increasing Number of SPAC Founding Sponsors are Industry Executives
SPAC IPO activity remains robust with 42 SPAC IPOs completed in 2019, representing 29% of the U.S. IPO market. One important trend in the SPAC market is that 76% of the 2019 SPAC IPOs were sponsored by industry executives, up from 65% in 2018 and 32% in 2017. These executives typically have public company experience or have sold their prior business and are seeking new opportunities. Often they have significant M&A experience and a proven ability to source transactions. In addition, of the 42 SPAC IPOs in 2019 sponsored by industry executives, approximately 75% of these SPACs have been focused on a specific sector, highlighting again the experience of the management team.
SPACs are very compelling for industry executives, as the economics are as or more attractive than traditional private equity fund economics. SPAC sponsors typically receive 20% of the common equity in the SPAC for an investment of approximately 3% to 4% of the IPO proceeds. For example, in a $250 million SPAC, the sponsor typically receives approximately $60 million of common stock for a $7 million investment in warrants.