The record boom in blank-cheque firms could make 2021 the year of the Spac

The boom in special purpose acquisition companies – or Spacs – is set to continue and this year looks on track to be a record one, says Goldman Sachs.

In a note on 1 March, “SPAC Almanac: Bigger, louder, faster”, the US investment bank tracked the recent boom in Spacs – also known as blank-cheque companies – since the beginning of the pandemic.

Some 175 Spacs have raised $56bn in IPO capital since March last year, averaging $1.5bn per trading day, the note said. In February alone, 90 Spacs raised $32bn in IPO capital – making it the largest issuance month on record.

“The blistering pace of issuance is likely unsustainable,” the authors, including chief US equity strategist David Kostin, wrote. “However, if the current pace of issuance persists, 2021 will surpass the 2020 full-year total before the end of March.”

The US investment bank’s analysts said that Spacs could generate more than $700bn in acquisition activity in the next two years.

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“We estimate $103bn in Spac capital is actively searching for an acquisition target,” the note read. They’re targeting $700bn of acquisitions on an enterprise value basis, which includes debt, the analysts said.

Separately, the executive director of Freedom Finance Europe, a Cyprus-registered broker, said that Spacs have been gaining popularity because they are “much easier” and faster transactions to set up, usually taking around three weeks. In the context of the pandemic where companies need to raise capital quickly, this is important.

“Spacs changed a lot and are now a very viable IPO alternative for many private companies,” said Evgenii Tiapkin in a 2 March statement. “Although they can’t replace traditional IPOs, they can provide more flexibility and efficiency, and this is why some companies choose to go public this way.”

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The world’s largest investment banks pulled in over $3.4bn advising on Spacs in 2020 – over five times the amount they made in any year over the past decade, figures released by data provider Dealogic showed in December.

The spike in interest has also filtered down to the way banks are organising their resources: Goldman Sachs shifted two of its most senior equity bankers in London into a new team that will look to capitalise on the increase of these types of funding vehicles in Europe.

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