Nikola Stock – The art of the SPAC: from sublime to ridiculous
If beauty is in the eye of the beholder, those with a hand in the SPAC market are seeing quite a pretty picture. More than 300 U.S. special-purpose acquisition companies have listed already in 2021, according to Refinitiv, outpacing previous records at this stage in a calendar year by more than 10-fold. They have minted billions for their creators and put an indelible contemporary spin on how companies go public.
Breakingviews has written about blank-check companies since the SPAC equivalent of the Renaissance – the mid-2000s. Much like art, the output and influences in successive eras have evolved. Old Master SPACs are relatively rare, cautiously constructed works. More recently, the rush to cash in on the craze has brought creations verging on the surreal. There’s even one in the works with the Dadaist name Just Another Acquisition Corp (JAAC.O).
SPAC artists, known as sponsors, and their early investor patrons are super-eager to find corporate targets as soon as possible after their own initial public offerings make them flush with cash. The huge incentives to get deals done have at times encouraged the absurd, like a blank-check company associated with tennis star Serena Williams – named Jaws Spitfire Acquisition (SPFR.N) – purchasing a 3D printing firm.
Some transactions are familiarly easy on the eye, like boutique investment bank Perella Weinberg’s sale to a SPAC at a rational valuation and with a reasonable business plan. Others could take time to be appreciated. The blank-check deal for chastened office-sharing outfit WeWork, tainted by a spectacular failure to go public by the traditional IPO method in 2019, is one such. Others, like breathless SPAC purchases of sundry revenue-light electric-vehicle startups including Nikola (NKLA.O) and Lucid Motors, may never live up to the initial hype.
The U.S. Securities and Exchange Commission is just beginning to up its game in authenticating SPAC deals. Recently the agency warned the vehicles about their use of optimistic projections in promoting their chosen merger partners. But there’s more – a lot more – to do.
A disciplined, useful market could yet emerge. In the interim, investors not privy to how a SPAC was made are stuck trying to distinguish one of Jeff Koons’ shiny canines from a worthless dog. This collection of Breakingviews columns tells the SPAC story so far, and how it might end.
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– Special-purpose acquisition companies have raised more than $97 billion in 326 initial public offerings this year through May 3, according to Refinitiv, versus $6 billion for 25 deals in the same period of 2020.
– In the same period, SPACs have completed 130 mergers worth almost $290 billion, versus 12 deals worth almost $8 billion last year.
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