Trendsetter:
The British billionaire
Richard Branson
(70) brought his space company Virgin Galactic to the New York Stock Exchange via Spac in 2019
Photo: BRENDAN MCDERMID / REUTERS
The former Deutsche Bank board member
Stefan Krause
(58) does it, ex-Unicredit boss
Jean Pierre Mustier
(60) as well, plus Rocket Internet foreman
Oliver Samwer
48), the German investor
Christian Angermayer
(42), ex -Siemens boss
Klaus Kleinfeld
(63) and many other prominent economic giants: They are all involved in the Spac boom.
Almost every day reports about new Spac foundations are running on the ticker.
In the USA in particular, business has exploded in recent months, but there are also initial deals or at least plans for them in Europe and Germany.
The research company Refinitiv counted 43 Spac deals worldwide in the first two quarters of 2020, compared to 83 in the third quarter alone. In total, according to the US broadcaster CNBC citing figures from Renaissance Capital, there were more than 200 Spac deals in 2020 with a total volume of 64 billion dollars.
Last year and this year together, the US bank Goldman Sachs believes a market volume of up to 300 billion dollars is possible - the Spac market has long been on a par with conventional IPO business.
So it is high time for an innocent question: What are Spacs?
What's up with the sudden boom?
How does this new business work, in which so many prominent figures in business are absolutely keen to participate?
Here is an overview of the most important knowledge about Spacs:
What are spacs?
The term Spac stands for "Special Purpose Acquisition Company", which in German means something like: A company that was started specifically to take over one or more others.
That means: Spacs are initially empty company shells that are founded and listed on the stock exchange.
The shares in these companies are usually placed at manageable amounts, such as ten dollars each.
The capital collected in this way of usually 200 to 600 or even 800 million dollars is then available to the Spac management - the so-called sponsors - in order to search for a company that they can acquire and transfer to the Spac coat can.
Seen in this way, the way via a SPAC represents an alternative to the classic IPO.
As a rule, the company to be searched for is characterized more precisely in advance, i.e. the search field is narrowed down.
For example, the former Unicredit boss Mustier announced this week that he wanted to bring a European financial company to the Amsterdam Stock Exchange via Spac.
Ex-German banker Krause has apparently specialized in electric car start-ups.
And investor Angermayer wants to focus his search for Spac on the biotech sector.
However, the Spac managers cannot take their time with their graduation.
In most cases, the period within which a takeover must take place is a maximum of two years.
If the company cannot be bought during this time, the investors get their money back.
Even investors who are not satisfied with the selected takeover property can request their money back before the merger is concluded.
What are the advantages of Spacs?
Spacs serve as a means of raising capital for companies that want to open up to the financial market.
However, they require significantly less work and time than conventional IPOs: For example, extensive road shows, at which investors have to be convinced, do not take place in the Spac cosmos.
As a result, these transactions are usually associated with lower costs.
Spacs also have advantages for investors.
For example, greater transparency than with a conventional IPO, because the companies that are ultimately taken over into the corporate shell reveal more information than can be found in prospectuses for IPOs.
In addition, the risk initially appears to be manageable: Anyone who does not agree to a takeover after careful research returns their shares and gets the purchase price refunded.
Why are Spacs booming now of all times?
The first Spacs were launched in the 1990s.
But it was only in the past few months that sales in the wallet business shot through the roof.
There are many indications that this development has a lot to do with the Corona crisis and the associated uncertainties: Anyone who starts the lengthy path to a traditional IPO in the pandemic environment is taking a certain risk.
Will the (stock market) world still be the same at the end of the road when the placement is due?
The alternative that is almost imposing is called Spac.
These deals can be brought about comparatively quickly and easily, to the benefit of everyone involved: the target companies who want to debut on the stock market, the investors who hope for returns, and the sponsors who also want to make their cut (usually the sponsors secure a share of 20 percent in the Spac in advance, free of charge).
What does the success of the Spacs depend on?
The success of a Spac transaction and thus the return that is ultimately in it for the investors stands and falls with the management, which is at the head of the Spac team, i.e. with the sponsors.
Expertise is required there, as well as experience and good networking in the target market.
The choice of fields of activity for banker Mustier (financial company) or investor Angermayer (biotech, where he already has a lot of experience) is no accident.
The same applies to various prominent figures in the US:
Billionaire
Alec Gores
(68) wants to bring a 3D printer company to the stock market through his Spac, and ex-Citigroup manager
Michael Klein
is already working on his seventh Spac for which he wants to raise a billion dollars.
Famous investors such as the hedge fund bosses
Bill Ackman
(54) and
Dan Loeb
(59) or social capital boss
Chamath Palihapitiya
(44) have also raised billions.
These are the names that investors should be focusing on.
Since there is at best an industry-specific or regional limitation about the company to be acquired at the time of the Spac issue, the management is the only thing an investor can base his decision on.
He shouldn't forget how manager remuneration is regulated.
Because it shows the motivation with which they go to work.
What are the risks and disadvantages?
Like every exuberant upswing in the capital investment market, the Spac boom carries a risk: the risk of exaggerations and setbacks.
Investors should remember that for the many billions of dollars flowing into the Spacs, there must be enough attractive investment targets.
That means: aspiring, growing companies that can ideally be acquired for less than their actual value.
Can this really work in every single Spac case?
Or isn't the sheer volume of investment funds threatening to distort the market and drive prices up?
There are already negative examples of failed Spac deals in retrospect.
A prominent one is the electric truck builder Nikola.
After the company
debuted on the stock market in 2020
with its glamorous boss
Trevor Milton,
38, shares initially skyrocketed.
But then there were allegations of fraud and short-seller attacks.
Eventually, General Motors withdrew from a proposed stake - and the share price lost ground.
The habit that Spac sponsors usually receive 20 percent of the shares free of charge can also appear questionable.
Due to this construction, deals can also pay off for the managers, which seem rather unattractive for the other investors, say critics.
Investors should also think about this before entering into a Spac offer.
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