A lot of changes happened in 2020 — both good and bad. Last year saw a rise in blank-check, or special purchase acquisition company (SPAC), IPOs. It was just another aspect of 2020 that made it a standout year. Generally, there has always been the occasional blank check that would go public. However, the amount that went public in 2020 was remarkable.
According to data by Dealogic, as of December 24, 2020, these SPACs raised a record $82.1 billion that year, which was a sixfold increase from 2019’s record high. This new record also accounted for almost half of the 2020 IPO market’s total proceeds — obviously a huge addition to an already robust IPO market that year.
When I was looking over the IPO market last year in March and April, it was hard to believe that 2020 was going to end on a high note. I was preparing for the worst. As the year progressed and those few months of strict national lockdowns passed, things started to get a little more optimistic — at least for the IPO market.
Because of SPACs, the IPO market ended the year 2020 with a record high. Without SPACs, it would have still been an outstanding year, especially given the circumstances of dealing with the coronavirus pandemic. If you aren’t totally familiar with SPACs, let me give you a brief explanation.
SPACs are used to fund a private company in order to get that company onto the stock market. Essentially, it is a vessel for a private company to go public without the hassle that can come with going the traditional route of having an initial public offering (IPO). SPACs go public and raise hundreds of millions of dollars from investors. Occasionally, a SPAC will have a company in mind that it plans to sign a deal with. If not, then the SPAC has two years to sign a deal or it is forced to return the cash to its investors.
A recent Goldman Sachs report estimates that 2020’s SPAC deals could lead to around $300 billion in aggregate takeovers over the next two years. Private companies see this as an alternative way to go public to avoid the traditional underwriting process and heavier SEC regulations. As these deals became more frequent, other private companies began to see the opportunity. The momentum experienced in 2020 for SPAC IPOs has continued into 2021. Electric vehicle companies have been one of the hottest sectors for these SPAC deals.
The Netherlands-based EVBox is an electric vehicle supply equipment company. It was founded back in 2010 and just reached the milestone of having 200,000 installed electric vehicle charging ports worldwide. EVBox recently announced that it would be going public through a reverse merger with TPG Pace Beneficial Finance Corp. — a SPAC that went public in October 2020. The deal is expected to close late in the first quarter of 2021.
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A report by Bloomberg New Energy Finance projects the electric vehicle market will hit 28% of global passenger vehicle sales in 2030 and rise to 58% of global passenger vehicle sales in 2040. Obviously, this market is growing, and the demand for charging port hardware will grow. The owners of some of these SPACs understand that and want to make money off of that forecast. While SPAC deals seem beneficial to some of these companies, they raise concerns for others. Former Goldman Sachs CEO Lloyd Blankfein has spoken about how the SPAC process doesn’t involve the appropriate due diligence that is needed during a normal IPO process, which could lead to problems. In a recent interview he said:
You’re getting companies public, but you’re getting them public in a two-step process where one of the elements of an IPO is dropping out… When the initial SPAC goes public, you are scrutinizing a shell company, possibly for the reputation of the sponsor… When that company then de-SPACs and mergers, it’s a merger, it’s not an IPO that carries with it a lot of diligence obligations.
Similar to what you see with highly anticipated IPOs, there is a lot of hype now surrounding SPAC deals. It may work for some companies, but more and more blank-check companies and private companies merging could potentially pose a problem for investors. Popular investors like the former Facebook Inc. executive and CEO of Social Capital Chamath Palihapitiya is a major player in the recent SPAC deal boom. He recently announced two new blank-check deals involving Latch, an enterprise SaaS that makes keyless entry systems, and Sunlight Financial, which offers point-of-sale financing for residential solar systems.
If you’re getting tired of hearing about these deals, then it’s going to be an exhausting next few months for you. The hype around these types of deals continues to grow. If we thought 2020 was a big year for the SPAC, well, 2021 could very well be even bigger.
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Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
