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Merger Monday for Spacs with $15bn worth of deals

Special purpose acquisition companies struck mergers worth more than $15bn on Monday, in a sign of how Wall Street’s euphoria for launching “blank-cheque” vehicles is becoming a major force for taking privately held businesses public.

Five deals worth more than $1bn were reached with Spacs, led by the $7.3bn merger of Alight, a cloud HR-benefits provider controlled by private equity group Blackstone, with a vehicle launched by US billionaire Bill Foley. 

Christian Naglar, a partner at law firm Kirkland & Ellis, said there was “an avalanche effect” of privately held companies either selling to or merging with Spacs. “People are discovering that there are many advantages of selling to a Spac versus doing an IPO the regular way.”

The frenzied activity is being fed by the growing number of Spacs on the market and a constant flood of new capital. There are now 129 Spacs searching for private companies to target while new issuance of Spacs got off to a record start in 2021, according to data from Refinitiv

This year, 66 Spacs have launched and raised $18.3bn, outpacing the $13.2bn raised through traditional initial public offerings globally. Last year, a record $79bn was raised by Spacs.

The litany of Spac listings and mergers has accompanied a US stock market rally, with the benchmark S&P 500 up 75 per cent from lows hit last March. The rally has been fuelled by trillions of dollars of stimulus from the Federal Reserve to support the US economy during the pandemic, but has had the effect of seeing investors piling into shares at unprecedented levels. 

Other deals on Monday included a Spac launched by Richard Handler, the chief executive of Wall Street investment bank Jefferies Group, and Tilman Fertitta, the owner of the Houston Rockets basketball team, who agreed to merge their vehicle with the Hillman Group, a private equity owned hardware maker, at a $2.6bn valuation. 

Taboola, an Israeli company that runs online advertising networks, agreed to merge with Ion Acquisition for a $2.6bn valuation, while Latch, a venture capital-backed maker of smart locks, merged with Tishman Speyer-backed TS Innovation Acquisitions in a deal worth $1.56bn.

Spacs, which raise money from investors by listing on the stock market, typically have two years to hunt for a company to take public using the proceeds they raise. Executives behind the vehicles pitch them as a faster route to public markets compared with the traditional IPO process but there have been mounting concerns about the quality of companies listing through Spac deals. 

Goldman Sachs chief executive David Solomon recently drew a distinction between companies that use Spacs to go public by choice and those that do not have other alternatives. He said in a call with analysts last week that the pace of “blank-cheque” vehicle listings was unsustainable

Investors see investing in new Spacs as a way to make money in a low-interest rate environment with practically no opportunity cost. And the money managers seeding the initial funds for many of these shell companies has expanded, Mark Brod, a partner at Simpson Thacher, said.

“What was once a fairly niche product marketed to very sophisticated hedge funds has grown,” he said. “There are a lot of hedge funds that do invest in Spac offerings, but now there are a lot of traditional long-only investors . . . that are participating.”

Kirkland & Ellis’s Mr Nagler added: “There are certainly many more Spacs looking for companies to buy than a year ago, however, we’re hearing from many sponsors that there are many more sellers willing to transact with a Spac than a few years ago.”


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